“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” – Peter Lynch, an American investor, mutual fund manager, and philanthropist.
Investing money can be challenging if you do it without proper research. The stocks that you buy must grow over a period; otherwise, you may lose your money.
So, if you don’t get answers to specific questions, you may reconsider whether to invest your money in that company or not.
What are these questions? What critical considerations you must be aware of as an investor before putting your money in those companies?
Let’s learn these questions and understand why they are essential.
What are Investment Questions?
Investment questions in this article refer to the questions you ask as an investor before making a decision to invest in a particular company’s stocks. For example, if you want to buy Reliance Industries Limited’s (RIL) stocks, then your investment questions may include,
- What is the financial performance of RIL?
- Who runs the company and what is the vision of RIL?
- What was RIL’s turnover in the last five years?
- How much is the company’s debt?
The above questions are given just for an example, you may have umpteen numbers of questions about the company and you should always find the correct information before making an investment decision.
Importance of Asking Investment Questions
Self-research and planning are increasing trends in today’s volatile financial times. That’s what makes a little money go a long way. Continue reading to know the importance of asking investment questions.
- Asking investment questions is vital since reviewing the company’s financial history gives the prospective buyer a better idea of the future.
- There are many bluechip companies to invest in, but when investors ask the right questions, they can invest in small-cap companies and may fetch higher returns in the short run as well.
What To Know Before Investing In A Company?
You can invest in a company only if it meets your standards, but how would you test that? First of all, ask yourself, “what caught my eye about this company?” and continue to note every metric as you evaluate the company.
Begin your research by collecting information about the leadership, asking who the company’s Chief Executive Officer (CEO) is and examining the company’s business model. It is an excellent practice to acquaint yourself with the vision and mission of the company and know its competitive advantages.
Check the company’s published financial statement to examine the debt-to-equity ratio, price/earning (P/E) ratio, and financial performance over the years.
7 Questions You Must Ask Before Investing
Investing enhances your wealth, but the danger of losing money accompanies it, particularly when choosing companies to invest in.
Let’s break down everything you need to know before investing in company stocks to assist you in avoiding costly blunders.
What is the Turnover of a Company?
Business turnover is a company’s sales generally made within one calendar year or financial year. Turnover is extremely crucial as a flat metric to work from, not just when determining how to fulfill profit targets but also while attracting investors.
Why is turnover significant to Investors?
It’s a crucial indicator of how well your company is doing. You can depend on the company’s turnover to make your investment decisions.
Consistent growth in a company’s turnover is a positive sign that the company is doing well and probably continues to grow.
Who Runs the Company?
Confidence in a CEO can be a significant sign of a company’s future success. CEOs not only determine a company’s strategic directions, but their decisions can also seriously affect the company’s success.
Get this Information about the CEO of the Company
- The track record of the CEO’s effective business choices.
- Examine their career paths and how they aid the growth of their prior (and current) companies he was employed for.
- Consider how the firm would fare if the CEO unexpectedly stepped down.
- Is the company’s reputation more outstanding than the CEO’s?
What Has Been the Financial Performance Of a Company?
As per the website disclosure rules, section 136 of the Companies Act, 2013, all listed companies must make their financial statements including consolidated financial statements electronically available to the public on their websites.
Investors scrutinize these corporate reports to know the company’s historical financial performance.
The Balance Sheet Of A Company
The investor analyzes the ratios in the balance sheet to understand how well the company is doing. The balance sheet also offers an option to analyze specific figures for return on assets, net worth, and debt to equity ratio. These figures guide investors to a proper investment decision to rule out possible future disappointments.
Who are the Key Competitors of a Company?
The key competitors can attract and take away the company’s consumers even when they produce some other products or offer some additional services.
Also, companies conduct fundamental competitor analyses to identify and investigate their competitors to understand their basic strategies. Critical competitor analysis helps investors to compare the company’s strengths and flaws.
How Much is a Company’s Debt?
Investors must understand how much a company owes. Companies that are deeply in debt are most likely to require bankruptcy protection. At the same time, low debt companies might be beneficial because it shows that the organization can repay it.
From the investor’s perspective, companies with no debt are not always suitable for investment because they do not have an acceptable amount of debt; these enterprises lose out on the ‘tax shield’ to a greater extent.
What is a Company’s Stock Valuation?
Stock valuation determines a stock’s current (or expected) worth at a specific point in time.
There are two methods for valuing stocks: absolute and relative valuation.
- Absolute valuation is a way of calculating the present value of a company by projecting its prospective revenue sources.
- Relative valuation determines the worth of a stock by comparing its value to its competitors and peers in the same sector.
To establish a perfect portfolio, you must devise a strategy to know more about the company, tailored to your financial situation. The investor may then adjust them to match their aims and preferences.
If purchasing stocks causes tension or anxiety, rethink what to do and where your money goes by gathering all essential information about the company.
At WealthDesk, we offer you readymade WealthBaskets consisting of stocks or ETFs reflecting an investment strategy or theme designed explicitly by the SEBI-approved investment professionals and make your investment journey hassle-free.
Here are three sources to acquire a company’s financial reports and other information: 1) the company’s website page, 2) the stock exchange website (NSE/BSE), and 3) financial websites & screeners.
Conduct thorough research, assess the stock’s fundamentals and determine whether it fits your portfolio before buying a stock.
You can begin stock trading with as little as ₹10. However, as a newcomer, it is feasible to invest a reasonable sum – say, ₹10,000 and slowly increase after that.
You must have a Demat account to buy stocks of a company. Hence, you will need to contact stockbrokers to open Demat accounts and pay brokerage fees for managing your Demat accounts with them.