After developing a trading strategy, you can now do a research for your stock investments. It pays to know the kinds of information that will help you become successful in your investment journey. After all, conducting a research will help you become aware of the risks and opportunities that is attached to every investment.
Here are some of the essential steps that you should do in your research process:
1) Examine the company income statement.
Choosing the right company for your investments is a very important step in your investment journey. Of course, your profit depends on the performance of the companies you have invested on, and surely, you wouldn’t want to invest in a company with an unstable financial status. By checking the company’s income statement, you can also predict the company’s future performance, thus giving you an idea whether you should invest on it or not.
You can easily find the annual and quarterly financial statements of all companies who trade their stocks publicly. Check out trading websites like Yahoo, or even the company websites themselves, and look for these 10-Q and 10-K reports.
These reports will give you a comprehensive look at the financial performance of the company, especially the revenue and expenses statements that show whether the company incurred profit or loss.
2) Examine the balance sheet.
Aside from the company’s income statement, you also have to check out the balance sheet. The balance sheet shows the company’s assets, liabilities, and owner’s equity. Assets refer to all valuable items that the company owns and uses, such as cash, accounts receivable, equipment, and buildings. Liabilities, on the other hand, are the amounts that the company owns to others, including loans and accounts payable. Lastly, downer’s equity is the amount of the business that the corporation itself, or its stockholders, own.
The balance sheet shows the company’s financial standing on the last day of the quarter in terms of what it owns and what it owes.
In the balance sheet, you can predict the company’s growth by looking at the ratio between the company’s cash and short-term investments, and its short-term liabilities. By comparing the two, you can tell whether the company has enough money to pay their upcoming debts. If the company is not in a good financial standing, you might have to reconsider investing into this company.
3) Check out the security’s historical prices.
Since the stock market is continually fluctuating, it’s advantageous to look at the company’s historical trading prices to see whether these stocks are within your investment strategy. You can utilise sites like Yahoo Finance to view graphs showing the company’s trading prices over time. These reports will show you whether the company’s stock price has been increasing or declining over time.
Usually, new investors avoid stocks whose prices are dropping. You can still profit by buying stock at its lowest price and sell it when it becomes valuable again, but these changes are very unpredictable and it may bee too risky for you.
4) Read news about the company.
Aside from financial performance, stock prices also reflect the expectations of the greater public for a certain company, based on things like popularity of their products and services, or how their competitors are performing.
A good research will give you a win-win situation. It may not give you the greatest profits overnight, but it enhances your experience as you take your investments to another level.