Investments: Keys to invest
Apart from valuation models and techniques, the investor can also look into undertaking a basic financial statement analysis. This is a fairly straight forward and simple exercise for the investor.
On obtaining the financial statement of the company, the investor should make a list financial ratios. These ratios need not be published in the financial statement of the company and investor needs to derive them.
These values are published online by the government sources and/or by U.S. Department of Commerce. Companies which have outperformed the industry average values on profitability parameters, asset utilization parameters are said to be managed well and can be looked into for investments.
No analysis mentioned here should be done on a standalone basis by the investor as all of them are intricately linked and share a cause-effect relationship.
A generalization should not be made by any investor regarding some key benchmarks or ratios saying that high ratio is good and low ratio is bad. Selection of companies to invest in should be done in relation with the economy and current happenings also.
Investors should also look into the past operations of the company, the management, locations through which the company operates, etc. as even these parameters play a major role in deciding the returns made on investment.
These analysis techniques and some experience will greatly help an investor hone the skills required for spotting the trends and understanding how the future trends will be affected by what events. All the parameters described in the techniques given above are, in short, what should be looked for in a company to invest in.
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