Investments are a topic that do not come easily for many, some people don’t know where to invest, others think about how much to invest and those that do are often not sure if theirs is a suitable investment for their preferences and risk profile.
Stock investments are a good way to earn money where the longer run returns on equity outpace returns on most debt instruments. For instance, if you invest $1,000 in good equity scrips, your overall return in say 5-10 years would be far higher than investing the same $1,000 in government treasury bonds over the period.
Equity investing is not easy, especially with the amount of financial lingo that people in financial circles are used to throwing. If you don’t know the terms, then understanding and assessing an investment can become a burden, perhaps this is one reason many people prefer to invest in equity through mutual funds.
For starters, if you are looking at any good scrip, check out the following numbers and compare them historically for the same company as well as with other peers and industry average to get the picture:
- Net profit
- Asset base
- Cash flow from Operations
- Earnings per share – EPS (Equity divided by Number of shares)
- P/E ratio (The price of share divided by earnings per share)
Some qualitative factors to look into are:
- Management competence through track record analysis
- Company’s growth over time
- Future plans of the company
- Size of the market the company principally operates in
Keeping these pointers in mind would make you aware of whether a prospective investment is going to be a good one, and at the least let you ask the right “read: intelligent” questions.