Home » Investing » Top 5 simple but useful tips to analyse a stock
Drowning in credit debt?

Top 5 simple but useful tips to analyse a stock

stock-market-analysis-812317Trading in stock exchanges is an emerging phenomenon all over the world. People were never so anxious and interested to invest in the stock markets . Undoubtedly, it is the most interesting and lucrative way to earn money, but sometimes it can cost you as well. Investor suffer when they make  investments with  no or little background research and analysis . Analysis  is really crucial as you have to judge the monetary strength of the stocks , before buying them. Here we go; a list of tips is as follows that might help you in analysing stocks at home. Go ahead and be your own stock analyst!

1.Match up your needs

Before you make any buying transactions, you must identify your needs i.e., whether you are interested to hold a long term position or you want to earn money through speculation. If you are interested in speculation, technical analysis of previous couple of weeks will work for you sufficiently. But if you want to follow buy and hold strategy, you need to take special care in adding up new stocks in your portfolio. Other tips will be inclined to follow the buy and hold strategy but speculators may also exercise those indeed.

2.Industry Analysis

Conducting industry analysis is an easy task but important as well. You have to identify the industry which is currently considered as a yielding industry. For instance, some industries are all time yielding ones for example FMCG and Oil and Gas. You seldom find any slump. But these industries are not suitable for speculators because most of the listed companies are well established and a little rise or fall can be observed in the share prices. You basically earn through the dividend.

3.Measuring Financial Strength

Financial strength of a company can be measured through the publically available data such as financial statements of the company and market capitalization. Do never invest in the companies which are immensely dependent over the debt. Risk is higher in such sort of firms because higher ratio external debt is a signal that company does not own its operational assets.

4.Analysing the business model

For long term investors, it is the best tool to judge the future profitability. Yet this might include many tools altogether. It also contains the investors’ subjectivity and farsightedness inherent. The results enclose that how much a company has capacity to yield returns for longer term. The simplest form of business model analysis is SWOT (Strength, Weaknesses, Opportunities, and Threats) analysis. On the basis of SWOT, an investor can judge the extent of long term profitability in comparison with the industry analysis.

5.Quality of the Management

The most secret tip, that is seldom disclosed, is judging the management quality of the company. Go on the company web page and go through to the management profile. In the previous financial statements, you can find even previous management. If the management is competent and is stuck to the company since long time, the company has more potential. If the company shows growing figures but the management is continuously changing, this is a sign of financial bubble blast. Never invest in such companies.

About Emaad Qureshi