When you think of investing in stock markets, you are actually coming to invest in businesses which other people are running or starting off. As such, after looking at economic scenario and industry prospects, you need to study in details about the company or a stock before opening your wallet. After all it your hard earned money.
Let us have a look at few ‘must have’ for a business to invest in:
Promoter profile
A promoter of the business is the person who is a key person in starting a business. Generally they will be having dominating stakes in the business. His reputation in the industry, experience in the business and capability to take business to next level defines the entire story for that stock. In certain businesses, the management is in the hands of professionals, hence for such cases, you need to study about experience of these management professionals. And not to forget the importance of their stickiness with the business.
Products and Services
Each business focuses on a different lines of products or services. Demand of these products in the industry, especially in the geographical area where company has a reach, is a key factor which determines the potential revenue for the business. An increasing demand and increasing market share will bring in great value creation for an investor.
Profitability
Few businesses work on a small margins on sales and focus on increasing sales however few business even with lower sales clocks a huge profits due to high operating margins. Margins are the factor of competition however it may be simply beaten up by innovation. All you look for is a business with good profitability. This is a necessary requirement as profitability ensures sustenance however increasing profitability numbers year on year or growth is desirable for an investor.
Debt burden
Generally, investor gets so much lured by the product and brand that they totally forget about the strength of balance sheet. A good balance sheet is a combination of debt and equity, however skewed towards equity. Companies with high debt burden may look attractive in good economic scenario but in bad times it becomes difficult to service such debt. Such bad situation may also bring company on the verge of default or total closure.
Regulatory issues
These are the external factors which are beyond the control of the company however may have a significant impact. Any changes in the regulation affecting business severely may leave a company in a helpless state. Or any corporate governance issue may bring it under the scanner of various watchdogs. Investor should avoid any such company which is facing such issue or their is possibility for that.
An ideal investor choice should be a good promoter doing a good business. Where he find such business, he may invest his money and relax and expect his investment to yield a good returns in the time to come.
