Stock market for teens
Broad Parameters to invest in a stock
In this section, let us discuss how to do research in any stock and how to evaluate a stock and decide whether to invest in it or not. There are five broad parameters to look at while taking up the decision to invest in a stock.
- Growth: Whether the company is growing in terms of revenue in terms of profitability in terms of scale of operation, all these factors contribute to an important decision making for investment.
- Efficiency: Growth should always be accompanied with efficiency. A healthy growth can be witnessed only if efficiency is there. Efficiency could be the efficiency to collect the money from its debtors, efficiency to use its assets and manpower. Efficiency could be applied at all fields.
- Profitability: The third important criteria to be studied would be profitability. One has to check, is the company making profits? Is the profit getting converted into cash or not? Is the profit being utilised for further growth and expansion ?
- Solvency: Solvency can be an important measure of financial health of the company. It is a way of understanding a company’s ability to manage its business operations into the foreseeable future. Whether the company is in a position to repay all its debts during the course of time, is the company generating enough cash flow to pay off their liabilities- will tell us about the solvency status of the company.
- Quality: By Quality I mean the quality of the management who are actually running the business. The core team , the decision makers of the company. Are they efficient enough in running the company for you to put your hard-earned money into this company?