Beginners Guide to Researching Stocks
1- Determine how much money you’re willing to invest and which company/companies you want to invest in.
Before you get started, you’ll want to see how much a share of a company is going for today on the market. If you plan on investing $1000 to make a big return, then you won’t decide to just buy Amazon because it’s out of your price range. So, find companies that work within your budget.
2- Check with the company’s values and see if they align with yours.
If you love Apple products and love what they stand for, then it’s potentially a company that you would invest in.
On the contrary, if you dislike Aritzia and don’t like their values then why would you invest in that company?
3- Get a hold of their financial statements.
When it comes to any company that is publicly traded, the public has access to their financial statements. It’s quite simple to find, simply go on google and type “[company] financial statements.”
What is a financial statement?
It’s a record of the financial activities and positions of a business. They provide a lot of information about a company’s revenue, expenses, profitability, debt, etc.
If you don't know the difference between an asset and liability, then watch this video beforehand:
https://www.youtube.com/watch?v=f4hIGyWByNA
Some Basic Ways to Analyse their Financials
Look at:
The company’s net profit (the amount of money the company has left over after paying all their expenses).
Sales - Number of sales the company is generating.
Sales margin – you could have $500,000 in sales with only $10,000 profit. The sales margin allows you to see this. The higher the sales margin, chances are the higher the ROI (Return on Investment).
Cash Flows – Allows investors to see if the company has enough money allocated for payroll, for example. It allows the investor to see if the company can deal with unexpected issues that may arise and capitalize on it.
Debt – One ratio that is very simple to compute is the Current Ratio. Its Current Assets divided by Current Liabilities. It allows investors to see if a company can pay off their liabilities. Any ratio > 1 is good, the higher the ratio the better. If the current ratio = 1, then they're borderline.
4- Read expert opinions.
There are a lot of articles out there that talk about expert opinions for investing in a given company. My advice is to read it but take it with a grain of salt. This is just to enhance your knowledge before investing in the company.
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