The Microcap Minute Classroom. Module 9, chapter 2: Value filters, quality filters, growth filters, in plain words <div class="learn" markdown="1"> **What you will learn** - What the three big filter families each try to measure - P/E, profit margin, return on equity, and revenue growth in shopkeeper words - How to read one real ratios page without panicking - Why no single number is ever enough </div> Imagine a kirana store owner wants to sell you his shop. He asks ₹30 lakh. Before you answer, you would wonder about three things. What am I paying, compared to what the shop earns? How good is the shop itself? And is it selling more each year, or less? Screener filters come in the same three families: value, quality, and growth. ## Value filters: what am I paying? Say the shop earns ₹2 lakh a year after all expenses, and the price is ₹30 lakh. You are paying ₹15 for every ₹1 of yearly profit. That number, the price divided by one year's profit, is called the price-to-earnings ratio, or P/E. A P/E of 15 means fifteen rupees today for one rupee of profit each year, and the profit has to keep coming for the deal to work out. A lower P/E usually means a cheaper stock, though Chapter 4 shows how cheap can lie. ## Quality filters: is the shop any good? Two shops can both earn ₹2 lakh and still be very different. Ask how much profit stays from each ₹100 of sales: that is the profit margin. Then ask how much the shop earns on the owners' own money: that is return on equity, or ROE. An ROE of 15% means ₹15 of yearly profit for every ₹100 the owners have put into the business. Finally, ask how much the shop has borrowed. The debt-to-equity ratio compares loans to the owners' own money, and less borrowing usually means fewer sleepless nights. ## Growth filters: is it getting bigger? Revenue is the total money coming in from sales. Earnings per share, or EPS, is the year's profit divided by the number of shares. Growth filters simply ask: are these numbers higher than last year, and the year before that? A beautiful shop with falling sales is a worrying thing. ## One real page Here are Apple's actual ratios: Notice how one table holds all three families at once: value, quality, and growth, year after year. As we write this, Apple's P/E sits in the low thirties, so buyers pay about ₹33 for each ₹1 of one year's profit. Its profit margin is near 25%, about ₹25 kept from every ₹100 of sales, and its return on equity is above 100%, a figure pushed higher by years of Apple buying back its own shares, which shrinks the owners' slice on paper. Revenue growth is in single digits: Apple is enormous and profitable, but no longer growing fast. For contrast, [Microsoft](https://stockanalysis.com/stocks/msft/?ref=MICROCAPMINUTE) mixes fat margins with steadier growth, Nvidia shows explosive growth, and Coca-Cola grows slowly but has paid dividends for decades. Notice that the same handful of numbers sits in the same place for every company, so comparing two pages is easy. On the [screener](https://stockanalysis.com/stocks/screener/?ref=MICROCAPMINUTE), each of these ideas becomes a box you fill in: P/E below 25, ROE above 15%, revenue up over three years. Notice that every filter is just one of the ideas above, turned into a condition. Two honest warnings. First, a ratio on its own says very little: it means something next to a similar company or the same company's own past. That is why The Microcap Minute's company cards print a P/E beside the sector average and the company's own three, five, and ten year averages. Second, every filter in this chapter reads the business on paper; none can tell you whether money is moving toward the stock now. That is the rotation question from [Module 6](/mm-classroom/m06/), and Chapter 6 shows how the two questions fit together. And treat them as approximations, not gospel. <div class="try" markdown="1"> **Try it yourself** Open [Apple's ratios page](https://stockanalysis.com/stocks/aapl/financials/ratios/?ref=MICROCAPMINUTE) and [Microsoft's overview page](https://stockanalysis.com/stocks/msft/?ref=MICROCAPMINUTE). For each company, write down the P/E and one quality number (a margin or a return). Then label which one looks cheaper and which one looks higher quality, by the numbers alone. You are describing, not recommending. </div> <div class="takeaways" markdown="1"> **Key takeaways** - Value filters ask how much you pay for each rupee of profit: that is the P/E. - Quality filters ask how good the business itself is: margins, return on equity, low debt. - Growth filters ask whether sales and profit are bigger than last year. - Numbers move daily and differ slightly between sites; use them as approximations. </div>. I am Ritu, a synthetic voice, and the words I am reading are Ayush Agrawal's.

# Value filters, quality filters, growth filters, in plain words <div class="learn" markdown="1"> **What you will learn** - What the three big filter families each try to measure - P/E, profit margin, return on equity, and revenue growth in shopkeeper words - How to read one real ratios page without panicking - Why no single number is ever enough </div> Imagine a kirana store owner wants to sell you his shop. He asks ₹30 lakh. Before you answer, you would wonder about three things. What am I paying, compared to what the shop earns? How good is the shop itself? And is it selling more each year, or less? Screener filters come in the same three families: value, quality, and growth. ## Value filters: what am I paying? Say the shop earns ₹2 lakh a year after all expenses, and the price is ₹30 lakh. You are paying ₹15 for every ₹1 of yearly profit. That number, the price divided by one year's profit, is called the price-to-earnings ratio, or P/E. A P/E of 15 means fifteen rupees today for one rupee of profit each year, and the profit has to keep coming for the deal to work out. A lower P/E usually means a cheaper stock, though Chapter 4 shows how cheap can lie. ## Quality filters: is the shop any good? Two shops can both earn ₹2 lakh and still be very different. Ask how much profit stays from each ₹100 of sales: that is the profit margin. Then ask how much the shop earns on the owners' own money: that is return on equity, or ROE. An ROE of 15% means ₹15 of yearly profit for every ₹100 the owners have put into the business. Finally, ask how much the shop has borrowed. The debt-to-equity ratio compares loans to the owners' own money, and less borrowing usually means fewer sleepless nights. ## Growth filters: is it getting bigger? Revenue is the total money coming in from sales. Earnings per share, or EPS, is the year's profit divided by the number of shares. Growth filters simply ask: are these numbers higher than last year, and the year before that? A beautiful shop with falling sales is a worrying thing. ## One real page Here are Apple's actual ratios: Notice how one table holds all three families at once: value, quality, and growth, year after year. As we write this, Apple's P/E sits in the low thirties, so buyers pay about ₹33 for each ₹1 of one year's profit. Its profit margin is near 25%, about ₹25 kept from every ₹100 of sales, and its return on equity is above 100%, a figure pushed higher by years of Apple buying back its own shares, which shrinks the owners' slice on paper. Revenue growth is in single digits: Apple is enormous and profitable, but no longer growing fast. For contrast, [Microsoft](https://stockanalysis.com/stocks/msft/?ref=MICROCAPMINUTE) mixes fat margins with steadier growth, Nvidia shows explosive growth, and Coca-Cola grows slowly but has paid dividends for decades. Notice that the same handful of numbers sits in the same place for every company, so comparing two pages is easy. On the [screener](https://stockanalysis.com/stocks/screener/?ref=MICROCAPMINUTE), each of these ideas becomes a box you fill in: P/E below 25, ROE above 15%, revenue up over three years. Notice that every filter is just one of the ideas above, turned into a condition. Two honest warnings. First, a ratio on its own says very little: it means something next to a similar company or the same company's own past. That is why The Microcap Minute's company cards print a P/E beside the sector average and the company's own three, five, and ten year averages. Second, every filter in this chapter reads the business on paper; none can tell you whether money is moving toward the stock now. That is the rotation question from [Module 6](/mm-classroom/m06/), and Chapter 6 shows how the two questions fit together. And treat them as approximations, not gospel. <div class="try" markdown="1"> **Try it yourself** Open [Apple's ratios page](https://stockanalysis.com/stocks/aapl/financials/ratios/?ref=MICROCAPMINUTE) and [Microsoft's overview page](https://stockanalysis.com/stocks/msft/?ref=MICROCAPMINUTE). For each company, write down the P/E and one quality number (a margin or a return). Then label which one looks cheaper and which one looks higher quality, by the numbers alone. You are describing, not recommending. </div> <div class="takeaways" markdown="1"> **Key takeaways** - Value filters ask how much you pay for each rupee of profit: that is the P/E. - Quality filters ask how good the business itself is: margins, return on equity, low debt. - Growth filters ask whether sales and profit are bigger than last year. - Numbers move daily and differ slightly between sites; use them as approximations. </div>

That was chapter 2 of module 9. The text, the pictures and the exercise are on the lesson page. Thank you for listening.