Updated: Oct 31, 2021
You’re fully furnished with your trading account, now behold, your adventure begins.
Let’s start with the fundamental analysis of companies, this would be the base which you will be making your trading decisions on.
Today, let's discuss about the numbers.
I’m talking about opening the good old books. Accounts. Yeah, that boring stuff.
Unfortunately, to get an idea of how a company is going to do prospectively, we have to look retrospectively.
Now, for the sake of our sanity, I’ve identified a few key items that you should be focusing on:
Revenue: make sure that the company’s revenue has been growing steadily. This translates to the company being more successful in their attempts to generate sales.
Operating margin %: This number represents the amount that the company needs to maintain operations. 60% operating margin would mean that out of every dollar the company earns, 40 cents goes to its operation costs. Now you would want to see this figure increasing, which mean that the company is becoming more efficient with it’s use of money.
Net income: How much the company earns after deducting all it’s expenses, obviously this should be increasing as well.
Earnings per share: self explanatory isn’t it? Should be increasing as well,
Operating cash-flow: Now this is important, cash-flow is the life blood of a business. No matter how brilliant your idea maybe, you can’t sustain yourself without cash-flow. I like to see a healthy amount of cash-flow, steadily increasing as well.
Free cash-flow: This is to ensure that the company is ready for any unforeseen circumstances, such as the COVID-19 crisis. Incase of periods where sales might be completely cut off, the company has a reserve to fall back on.
Debt to equity: How much debt is the company holding, below 0.5 would be good.
Growth: The company should be growth substantially, this is especially important when investing in the US as generally high growth companies will be essential if you want to see a double digit return on investment. If that’s not your cup of tea, go for the Singapore markets instead.
Wheew.. heavy stuff.
Now that you know what to look out for, the question is where?
There are a few options:
Smell ya later folks.