InvestorQ : What are the basics principle to choose company in stock market?
leah Diaz made post

What are the basics principle to choose company in stock market?

Answer
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simran Kaur answered.
2 years ago


The very first step to choose company to invest is by understanding the potential growth of the company. For this one has to look at the company’s report and find the operations, profit, and future prospects. Some of the point to be remembered are:

  • Industry Every industry has its own pros and cons. So understand the industry before entering choosing the company. Also, you can do the reverse, choose that company from the industry you know or have knowledge. This will help you to know the real value of the company and market correction as you know the deriving factor.
  • Debt-equity ratio Look at the financial reports of the company to understand the debt-equity ratio by dividing total liabilities by total assets. This indicates the amount of asset which a company has taken on debt. Also, more the debt more would be the cash outflow to serve the interest on the same. Although every industry has different debt to equity ratio benchmarks, lower debt-equity ratio is a good indicator.
  • Dividend Dividend is a part of profit earned by the company and given to shareholders and so one should look at the dividend history of a company before investing.
  • Cash Flow Cash flow is a statement that basically tells you how good cash is been utilized by the company. An excessive cash will be kept idle and fetch no return which would have earned return or use in productive work that would have created asset or cash. However, there should be a some cash so that operational activity is not hampered.

As you invest in stock of any company, you become the share holder of the equity and the owner of the company. So you should look into the financial report in a owner’s perspective.