In any place you read the stock, you always see the expression "due diligence." Key Indicators In Assessing Stocks – Doing Proper Due Diligence


What does this really mean and how do you effectively do it? Simply put, doing the right "due diligence" means using prudence and responsibility in researching the stocks under consideration. It involves familiarity with the company's operations, management, and related basic facts about company growth, profit and loss, business cycles, and how it ranks in the industry. Fortunately, with respect to each publicly traded stock, there is a lot of information available, and there are some simple ratios and other factors that enable the stock to be evaluated and compared with other fields, a relatively straightforward process

First, every company listed on a public exchange publishes quarterly and annual reports that provide detailed information about the historical background, including income, income, debt, and risk factors. In addition, these documents are usually interpreted in terms of commentaries from the CEO, President or President, putting information in context and explaining current management perspectives. All this information, however, is being released by the company, whose goal is to put everything at the best possible light. Therefore, it is important to go beyond the language and evaluate the numbers

Fortunately for daily investors, it is not necessary to dig deeper into the company's published profit and loss statements to find the basic figures needed to make an assessment You do a lot of free financial sites, including Yahoo Finance, Google Finance and MSN Money, citing some of the larger ones. I am not implying that it is a bad idea to study the financial statements in depth and to be thoroughly familiar with every financial aspect of the stock purchase. I simply said that there is no need to obtain the basic information needed to make an informed decision. My opinion is that once you have a good idea of ​​what the company is doing or what services it provides, there are roughly ten indicators you can use to compare with your peers and determine if you want to buy the stock

Income is perhaps the most important indicator. No income company can not survive. In general, by gaining historical knowledge about income trends, you can determine where the company is in its growth cycle. Like us, companies tend to grow fast in the early stages, mature slowly, stop growing, and even shrink at the end of the life cycle. When your company is in its growth cycle, you are very relevant to your investment plan and your investment plan is determined in part by your life path.

EARNINGS

Although companies can exist for a long time with little or no income, only in very unusual circumstances where people want to buy a company that does not generate income or seem to have no chance In the near future to create income. Whether revenues are increasing or decreasing is easily determined by historical data. The simple ratio of current price to earnings (PE ratio) to historical price-earnings ratio, as well as the price-earnings ratio of other companies in the same field, will quickly show whether the stock price is appropriate, too high or too low. As a buyer, you want to find a stock that is below the unreasonable PE ratio compared with peers. This usually occurs when the market as a whole needs to fall sharply, or when the sector due to some of the shares of the discussion has nothing to do with the factors falling. Care must be taken to ensure that the low PE is not due to the company being in trouble and that the share price falls due to the expected decline in earnings

EPS is also readily available for each financial website and specifies that each share How much corporate earnings are distributed. This is important, for example, when determining how much available funds are available for paying dividends, and how much is left for growth, dealing with unexpected issues, and so on. If the EPS is negative or if the dividend equals or exceeds the profit, it is clearly a red flag, meaning something is not normal, or there are special circumstances where potential shareholders need to know and understand

Profitability and equity The returns vary widely, from industry to industry, and comparison with similar companies will reveal the performance of stakeholder companies compared to peers. There are a number of specialized companies, such as Masters LLP, REITs and Business Development Companies, which are subject to a different set of rules, with the vast majority of companies giving them tax-exempt status and requiring a 90% income distribution. In these unique operations, other indicators such as distributable cash flows, interest rate trends, and hedging may play an equal or more important role in the assessment process than current returns.

DEBT and EQUITY

The DEBT to EQUITY ratio is a very important indicator, especially in industrial or manufacturing companies. Is clearly more favorable than equity debt, so when a healthy company's equity is divided into debt, the debt to equity ratio should normally be less than 1.

Assets and Liabilities

Similar Debt and Equity, In the circumstances, it is advantageous to have more assets than liabilities that are justified. As a general rule, you want to see assets with at least two liabilities. When you divide assets and liabilities, it is called CURRENT RATIO. You should look for a current ratio of at least 2.

Earnings per share

The carrying amount per share is the amount of the capital stock owned by each shareholder in the company, the net value of the company (assets minus liabilities) divided by the number of shares issued. In many cases, a successful company's share price will significantly exceed the book value because the market believes that the annual income is growing and sustainable. Sometimes a good company may sell at or below its book value. This usually indicates that the market for some reason or price underestimate the value of the stock. A company that markets are wrong, and unreasonably selling below book value is usually an opportunity to buy.

Shareholders

Related Articles

Who owns the stock, what their trading history is, is very important in determining whether the stake is a good candidate. Statistics on insider trading and institutional trading are generated by law, and the future of stocks can be quite convincing. Do you want to buy a stock, INSIDERS (officials and others known) have an important share of the company and continue to accumulate, or insiders sell the company? Similarly, when large INSTITUTIONS accumulate, what does it tell you? When they are stripped, what does it tell you?

Again, this information is published and available on most free financial websites, or can be inquired from any broker. On the other side of the coin is the short seller. When there is a high short-term interest (stocks are borrowed and then sold, hoping to repurchase them at a lower price to return to the original owner), this means that among the short sellers there is a belief that the price of the equity decline. The question to ask is that they know you do not, or if you want to buy, do you know what they are not? Short sellers are often professionals who are often involved in large, successful hedge funds. As a general rule, when short-term interest is high and growing, it is time to be very wary of considering buying.

Every time you see the phrase "past performance can not guarantee future results", "Remember, although it is not guaranteed that it may be the best indicator available. Time to understand the potential companies and understand their operations and then review their historical performance against the relatively small number of indicators listed above, you will be ahead of the vast majority of investors.Note that this information is readily available from the top It can be seen that the assessment is not complicated.It takes some time and effort only you can determine whether this effort is worthwhile.There are always a lot of people out there happily than to tell you what to buy.I suggest you ask yourself the only question is: who More than you care about your money?