Things To Keep In Mind Before Investing In A Company Stock
A company stock simply means a claim in the company’s asset and liabilities. When you buy a company stock, you are a part of the company and own a stake in the company as per their stock allocation.
You can buy a company stock either through stock markets or an online brokerage firm. When the company earns through its profits, you will receive dividends, if you are a shareholder.
Investing in a company stock
When investors face losses either it is due to misleading information or you have not done your research thoroughly. Here are some pointers, which you, as an investor should know before you invest in a company stock.
- Company business
In order to invest in a company, you need to be sure about the business they are doing. Apart from that, you also have to know that whether the company business meets your understanding. For that, you can do online research or see the company prospectus for further information. - Track record
How a particular company has performed in the past, says a lot about the company’s record of accomplishment. A company with a strong foundation, which has been in the business for a long period, can be termed as a stable and strong company in comparison with other new companies with no track record.
A company’s financial performance is determined by its assets and liabilities. You can gauge company’s financial performance by its history, its 52-week highs and lows, the history of dividend payout, and stock split.
The price-earnings and the price-sales ratio of the company will determine the company’s worth. Based on these figures, the price of the stock is fixed. How the company grows and expands along with its yearly average earnings is what an investor needs to know before investing.
Information regarding who is on the company’s bench of promoters speaks volumes about how much the company is valued. Are there any known names on the board of directors? This information very much sums up the overall company reputation. If a well-known and reputed promoter is with the company, you know the future of the company is safe.
Before investing, you investor should evaluate the risk factors that can hamper company’s growth. You can get information about the risk factors from company’s annual report. All companies come with some amount of risk factors, which is natural with any company.
10-K and 10-Q are referred to as the annual reports of the company. The United States Securities and Exchange Commission makes it mandatory for the companies to file their annual reports with them. The 10-K form is a disclosure, which every public company needs to make it before the end of the fiscal year. 10-Q is similar to 10-K except that a company needs to file it quarterly or three times a year.
Balance sheet, income statement, and cash flow statements are some of the parameters to know the net worth of the company. Other factors such as company policies and their disclaimers should be well read and understood to be a stakeholder in a company.
