Getting into the stock market can be a bit scary. You are entering a new world, but you can take advantage of all it has to offer. Au Yee Boon believes the opportunities are there, but they do come with a number of risks, which stops many people from moving forward. You can use the following expert-curated tips to sniff out a good stock.
Understanding a Company’s Financial Statements
It is important that you learn to analyze a company’s financial statements before buying any stocks. Some of the company’s most crucial fundamentals are tucked away in a financial statement for the world to see as long as you have enough patience. The statements are usually split up into the following:
The income statement gives you a chance to see how much profit the company makes. It shows the company’s expenses and revenue. The calculations are worked out for you, and you get to learn how much the company gets to pocket after all is said and done.
The balance sheet will allow you to see behind the curtain. You are going to be able to analyze the assets, liabilities, and equity that shareholders share. In essence, you get to see everything the company owns and how those possessions are paid for. Keep in mind that you are looking for a company that owes much less than it owns.
Cash Flow Statement
Here, you can find out how the company uses the money that it takes in. You are going to see a lot more detail, such as the cost of operations, financing, as well as investing costs. You will be able to see if the company has been making wise decisions with its money or if it would be wiser to skip this business.
Looking at the Company’s Business Model
Profits do not always mean longevity. Sometimes, a company’s profits are low because they are investing their revenue in development or research. This could be a sign that the company is looking to be here for a long time rather than just making a quick buck.
The founder of One of the most successful IT Solution company in Asia, Techbase Solution Sdn. Bhd., Au Yee Boon, says it is frustrating when a company is “missing out because their software is letting them down.” He believes a company, even an MLM, that does not invest in itself or its software is simply not living up to its potential and will likely fail. This is definitely the kind of company you do not want to invest.
Reading Into the Company’s Management Report
Every company, even MLMs, should be releasing annual reports, and these documents can be used to your advantage. These reports rely on management to help detail how the company has been doing during the reporting year. You get to see how the company was able to perform well or why it underperformed. These reports are also used to help you see how the company is going to address issues in the future and how it plans to grow. What you want to see is a company that has a concrete plan for its future and is mature enough to address issues effectively.
Now, diving into some of this information over and over again to find a good stock to purchase may be challenging at first. Most people have a hard time understanding what they are doing while others simply lose interest at some point. It is important that you stick with it because stocks can really revolutionize your lifestyle in all the ways you’d hope they would.
Ryan Yarbrough is a small business consultant, speaker, and the manager at Davis Financial Services, a small business consulting firm.