Check points before purchasing a stock

Check points before purchasing a stock

when you decide to buy a stock for the purpose of investing, it is critical to complete your research before putting your hard-earned money into it. When purchasing a stock for the long term, your goal should be to find good value.

Check points before purchasing a stock
Stock Market

Investment Methodology

Before purchasing a stock, you should research numerous investing strategies and select the one that best suits your investing style.

Check points before purchasing a stock, You must check following points before selecting stock

  • Company must be profitable.
  • Company performance history.
  • Company balance sheet
  • Company should not be in debt
  • Stock should not be over valued

Company must be profitable

How much money did the business make in the last few years? What is the profit margin at each level of the company’s gross, operating, and net profit? Is the company’s profit increasing or decreasing over time?

Investors can also look at how the stock has performed in contrast to its peers, which can be done using websites like Google Finance.

Company performance history.

How have the company’s finances fared in recent years? What is the company’s income statement and cash flow statement trending like? Over the last few years, how have sales, EBITDA, Cash from operating activities, free cash flow, and other financial measures performed?

Company balance sheet

Are the company’s assets increasing over time? How much is the company’s liability? Is there a rise in the company’s shareholder equity? On the asset side, how much cash does the company have? What is the value of the company’s intangible assets, inventories, receivables, and parables, among other things? Is the corporation investing in R&D, particularly in a few fields such as technology, pharmaceuticals, and so on?

Company should not be in debt

Is there enough profit or free cash flow generated by the company to cover the debt in the coming years? Have any of the promoters’ shares been pledged?

The Company’s Size

before purchasing a stock, Check The size of the firm in which you are considering investing has a significant impact on the amount of risk you are willing to assume when purchasing a stock.

Before purchasing a stock, it is critical to assess the company’s size in relation to your risk tolerance and time horizon.

The market capitalization of a publicly traded firm can be found by looking at the company’s market capitalization.

Stock should not be over valued

Before purchasing a stock,Check what is the company’s genuine intrinsic value? Is the corporation overvalued, undervalued, or fairly valued right now? Is the company undervalued in comparison to its competitors and the industry? What is the intrinsic value calculated using various valuation methods? How big is the safety margin? If you buy the stock right now, will you be overpaying?

Recognize how the business produces money.

The next stage is to determine the source of the company’s revenue. To do so, go to the company’s investor relations website and read the company’s most recent quarterly reports.

Conclusion on Check points before purchasing a stock

Getting a referral or investing where a friend or colleague suggested can lead to a few lucrative deals. However, you must develop your own reliable investing technique if you want to generate consistent profits from the market (rather than relying on luck).

It’s true that selecting a winning stock necessitated extensive investigation. Having a list of questions to ask before investing in stocks, on the other hand, greatly reduces the odds of investing in fundamentally weak stocks. Furthermore, you may easily reject over 90% of the businesses that don’t suit your criteria.

If you only have $10,000 to invest, don’t put it all in in one stock. That would be putting all your eggs in one basket. To limit your overall risk, invest $2,000 in five different equities, preferably in different industries.

Finally, don’t invest your entire portfolio in a single stock. Instead, over the course of several months or years, gradually construct a position to balance out your average purchase price.

Check list to choose right mutual fund scheme ..

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