Monday, December 7, 2009

What are the first things that we look for in a company?

Rule #1 for investment is "DO NOT LOSE MONEY."
If you cannot remember Rule #1, then remember Rule #2.
Rule #2 is "DO NOT FORGET RULE #1."

Always invest in companies that you intend to hold for a long term. Either sell only after making 50% profit, or keep the stock forever. DO NOT contra. Always buy shares that you can afford to hold.

Every year, listed companies must produce annual reports. The annual reports tell shareholders and public how companies have fared for the year. They allow investors to know if a company is making a profit or loss, the amount of assets a company has, the amount of liabilities that a company incurrs, how much reserves/cash a company has, how much debt a company has and so on.

So what are the first things that we are looking for?
1. EPS - Earnings per share
    EPS tells us if a company is a making a profit or loss. Share prices are shown on per share basis, hence EPS
    can tell us how much returns we are getting inrelation to the price we paid for the company's shares.
    What we are looking for is the growing EPS in the past 5, 7 and 10 years.

2. Total Sales/ Total Revenue
    The total sales/revenue of a company allows us to see if there is increase in sales for the past years. If sales did
    not increase or have a decreasing trend, then we are not interested in this company at all.
    Just like EPS, we must see the growing sales in the past 5, 7 and 10 years.

3. Equity (Reatined Earnings)
    Profit made by company can be either retained or given out to shareholders as dividends.If more earnings are
    retained, there will be growth in the equity. Retained earnings can be used for normal operating expense or
    to expand the company further, so as to bring in more profits.
    We are also interested to see the equity grow through the past 5, 7 and 10 years.

4. Total Debt
    If a company has got no debt, it means the company is able to self run without the help of loans. This is good
    news to investors because the company gets to keep 100% of the profit after tax.

The above 4 items are the basic things that I will look for at first before doing more intense calculations to find the
intrinsic value of the company.

So start getting information from the Internet.

For those who are only interested in Singapore Market, surf the company's website to get a copy of their annual reports for free.

For those who are also interested in U.S. Market, you can try MSN money.

Have fun.

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