How do you Analyze a Company Before Investing?

Investing

Are you thinking about buying the stocks of a company? If you are, you have mostly thought about the company. It’s a given, and it is also the first thing you have to think about. But being the analyst and the investor all by yourself is a hard job. Sometimes it might also seem overwhelming. But, long-term wealth creation demands this topic, and it comes to your duty to complete this with 100% focus and effort. While you look at it now, it might seem like a long and hard road, but while you actually do it, it wouldn’t feel this way.

First things first, let us look at how to analyze a company before investing in its stocks.

1. Identify the Company and its Characteristics

This is the very first step you need to take in the process of your analysis. There are several ways to do this, and the very first one would be through the company’s own website itself. It is best to hear from them first, then go to the other sources, right? You can look at the website, their about section, their management, and for the way they manage, you can look at the social media. After you look at all of this, you can look at it economically through reports and news. This will give you an in-depth understanding of how they perform.

2. Their Products and Services

How can you forget the treasure of the treasure hunt? Their products play a role in the whole situation. When coca-cola came out, everyone had a hint it would reach heights, just not sure what kind of heights. When you Analyze the products and services of the company, you understand the company itself. How is the product performing in the market? How are they improvising? Are they just sticking to one product and service, or are they growing and expanding over time? What is the demand for their products? How are people reacting to it? What are their special features when kept against their peers? What are their channels of distribution? Are they change-friendly? Once you have answers to all of these questions in terms of the product and the service, you are set to go to the next step.

3. Understanding the Company’s Risks

Risks are a part and parcel of every firm, given big or small. Whether it is a small firm or a big corporation, the risks involved are the same – just the size of it differs. Every company is bound to face risks of its own, though how they deal with it is a big consideration, the potential drops are a given. These risks are also the cause of stock top losers of companies. Well, if you can see the companies potential lists and what can bring them down, it can be a good indicator of your investment journey.

4. The Financial Statements

This is also one of the most crucial factors to the analysis of a company. A company’s financial statements can show you how the company stands financially. At the end of the day, everything goes according to these statements. When you know the company’s debts and expenditure, cash flow, and much more, it’s easier for you to make your final decision about the company. There is no better way of finding the company’s current state than the financial statements.

5. Find More on the Chief Executive Officer

This might seem irrelevant to some, given looking at the CEO when there is a whole company to look at, but it’s worth it. Have you passed success stories in recent years without talking about Sundar Pichai? Or have we not spoken about Jeff Bezos stepping down as the CEO of Amazon. The CEO plays a crucial role in every company. How the CEO responds to successes and failures – how he tackles situations can directly impact the stocks you are about to invest in.

Why Do you Need a Company Analysis?

Some people assume it’s not completely necessary to analyze a company before they invest in its stocks. Don’t be one of those people. Be the one that analyzes the company before anything else on the adventurous ride of investing. Here is why you need to do a company analysis.

It drives your decisions: At some point, you are probably thinking about investing in the stock, given that it had a sudden high. But, once you look at the company, your thoughts mostly change. A company analysis can impact your investment decisions in big time. It could drive you towards investment when you least thought about it or drive you away from it when you were almost going to invest in it.

Is there a Drawback to Doing a Company Analysis?

Everything has two sides, so does this. Yes, there are drawbacks. Actually, it’s one Drawback. When you do a company analysis, you’ll have several questions popping in your head. It will mostly be a long series of questions that you would repeatedly have to answer until you finally invest.

Since you’d repeatedly keep looking up different factors of the company – you’ll second question everything else, since it deals with you investing in this company after the analysis.

Conclusion

You know the benefits of doing a company analysis. You also know the demerit of it. One mention though – questions are always good, and they clear your head. Now that you know how to get an analysis done, what’s the wait for?

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.