SHARETIPSINFO >> Articles Directory >>How to shortlist best companies to invest money in Indian stock market
Anyone who invests in the stock market does that to gain from the investment. But there is no surefire formula to predict which stock will give good return. But of course there are ways in which you can find out the stocks that are most likely appreciate in the near future. There are some factors that can give you a fair idea of the financial standing of the company and potential of the company in its area of business. If you can effectively scrutinize these aspects you can have a clear understanding of the potential of the stock to rise in the future. Here we are discussing some of the factors that will help you identify the companies that are most likely to give you great return in the future.
The first thing that you need to consider is the sales revenue of the company. Sales revenue is the amount of the money that a company makes in a financial year. If you are investing in a relatively younger company the sales revenue will not be a much important factor but for those companies that are in the business for a significant period of time the sales revenue will give you a good idea of the volume of business of the company that is the basis of the financial position of the company.
The next important factor that you have to look for is the earning of the company. Basically earning of the company shows the net income of the company excluding all the financial liabilities. So this is exact figure that the company earns every financial year. This is surely a good indicator of the company’s financial aspect and a determining factor of the future potential of the company as well. It is always advisable that you take note of the earnings of a company for the last few years as considering the last year’s earning will not give you a clear picture of the financial standing of the company.
Along with the earnings and revenue of the company the financial liability of the company needs to be calculated as well. This is important as that will give a clear picture of the actual financial status of the company. For example if a company has huge debts in the market and need to pay interest for those debts then it is evident that a large share of the earning of the company will be spend for recovering the debts and paying the interests. This will definitely hinder the process of growth in the company. So it is wise to consider the liability of the company along with other financial factors to have an idea of the future of the company.
The asset and liquidity of the company are the two important factors that will give you a good idea of the financial position of the company. The asset of the company considers the property of the company in terms of land, infrastructure and other things and the liquidity of the company refers to the cash position of the company. These two aspects are determining factor for having an idea of the financial condition of the company. It is always wise to invest in a company that has good cash position and significant asset value.
One of the most important aspects for selecting the company for investment is the valuation of the company. There are so many ways in which the valuation of a company can be determined but the PE ratio is the most widely used method for determining the valuation of the company. Generally a lower PE ratio would mean that the company is of lower value on the other hand a higher PE ratio would mean a higher value of the company. According to the experts it is wise to invest in a company whose PE ratio is neither too high nor too low. It is advisable to invest in stocks that have a PE ratio between 5 and 50.
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