How Do You Choose a Company to Invest In

Submitted by Stock Market News on 20 May, 2011 - 13:29

A guide in how to choose the right company to invest in.

There hundreds of companies that you can invest in. If you are a newbie scanning the market to decide what you should buy or where put your money in, the list can be overwhelming. Apart from that the research can be daunting. You have to go through a lot of websites or paperwork. But even before you begin what is it that you have to look for in a company that will make it a good investment?

  • Does the company have an advantage over its competitors? More importantly is it competitive? Takeover and buyouts are common in the business world. This can dilute your investment. Take a look if its able to go toe to toe with its competitors or have an advantage over them to survive in its industry in the long run.
  • Examine the company's annual performance. Take a look if its sales and earnings show a consistent improving trend. Take a look at its margins, equities, debts, costs and expenses. Does the company have a high equity, gross margin and net profit margin? Does the company pay dividends which has increased in the last ten years? Also see how its figures stack up against its competitors. Do you think this company will last in 10 to 20 years? In short, take the time to evaluate its equity, income, and cash flow statement.
  • Last but not the least, take a look if the price suitable. Its not just about finding a good value for your money but also making sure that it reflects the value of the company.

These are the factors that you have to look into when choosing a company. It does take a lot of research and number crunching but its useful in making a sound decision before you leap in.

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