How to Analyze the Company Before Investing

How to analyze the company before investing

What is Fundamental analysis?
Fundamental analysis is basically done for long term and mid term investment which is also called as delivery based investment or trading.
The main important aim behind is to study and understand the company in which you are planning to invest your hard earned money and get excellent returns.
Generally hard core fundamental analysis is very and is out of the scope of this website, but if you are interested to learn then please contact us and we will provide you appropriate resources to study the same.

How to analyze the fundamentals of the company?
Basically one should be able to judge at least how the company has done in past years, its debit status, its current valuation, its future growth prospects, its earning capacity etc
So that based on these terms he can at least decide whether to invest in this company or not.

What you should look for in a company to invest?

1. About Company -
What the company is doing and what are its businesses?
How is the current demand for their products and how the demand will be in future like in next 3 to 5 years and so? (It is difficult to analyze the future demand yourself so you can visit financial websites or contact us)

2. Earnings -
This is very important parameter. Broadly look into its last 5 or 10 years earnings whether the company has posted profits or losses.
It’s all about earnings. The bottom line is investors want to know how much money the company is making and how much it is going to make in the future.
To find the earning status ratios used are EPS - Earning per share

3. Current valuation -
This is another very important factor which most of the investor forgets while doing their investments.
Generally most of the investors invest at higher valuations of shares and when share prices start coming down then they keep worrying, so this should not happen.
Before investing one should check the current valuation of the share price and invest only when the share price is at right price and not at over priced share.
This is what happened in January 2008. Most of the people invested at very high valuations and later on the share prices started to correct (falling down).
To find the current valuation of the stock the ratios used are
PE ratio - Price to earning ratio
Book value
PB ratio - Price to book value ratio

4. Future earnings growth -
It is very important to analyze how the company is going to do in future. How will be its returns or its profits etc?
Basically most of the investors invest in shares taking into consideration Company’s future growth prospects.
To find the future growth of the stock the ratios used are
PEG ratio - Price to earning growth ratio
Current EPS and Forward EPS
Price to sales ratio

5. Debit status -
For any company to perform well in the future it is very important to be debt free or less debit because if company is having large debits like borrowings, loans then it becomes difficult for it to plan for any acquisitions, expansion plans take over plans, dividend payout and very important its most of the net profit goes in paying the interest and loans and other debits.
So in other words if the company is having fewer debits or no debit then they are having lots of cash in hand and they are free to take any decision in coming future.
To find the debit status of the company the ratios used are
Debit ratio

So to accomplish above parameters fundamental analyst follow certain ratios which are mentioned below

Earnings

Earning Per Share - EPS
EPS plays major role in investment decision.
EPS is calculated by taking the net earnings of the company and dividing it by the outstanding shares.

EPS = Net Earnings / Outstanding Shares
(Nowadays you will get this ready made, no need for you to do calculation.)

For example -
If Company A had earnings of RS 1000 crores and 100 shares outstanding, then its EPS becomes 10 (RS 1000 / 100 = 10).
Second example -
If Company B had earnings of RS 1000 crores and 500 shares outstanding, then its EPS becomes 2 (RS 1000 / 500 = 50).

So what is that you have to look in EPS of the company?
Answer - You should look for high EPS stocks and the higher the better is the stock.

Note - You should compare the EPS from one company to another, which are in the same industry/sector and not from one company from Auto sector and another company from IT sector.

Before we move on, you should note that there are three types of EPS numbers:

Trailing EPS - Trailing EPS means last year’s EPS which is considered as actual and for ongoing current year.
Current EPS - Current EPS means which is still under projections and going to come on financial year end.
Forward EPS - Forward EPS which is again under projections and going to come on next financial year end

But the EPS alone doesn’t tell you the whole story of the company so for this information, we need to look at some more ratios as following.
It’s not advisable to make your investment decisions based on only single ratio analysis.
EPS is the base for calculating PE ratio.

Importance of Earnings -
Earnings are profits. Quarterly or yearly company’s increasing earnings generally makes its stock price move up and in some cases some companies pay out a regular dividend. This is Bullish sign and indicates that the company’s is in growth.

When the company declares low earnings then the market may see bearishness in the stock price and hence its share price starts deceasing and corrects further if the company doesn’t provide any sufficient justification for low earnings.

Every quarter, companies report its earnings. There are 4 quarters.

Quarter 1 - (April to June and earnings will be declared in July)
Quarter 2 - (July to Sept and earnings will be declared in Oct)
Quarter 3 - (Oct to Dec and earnings will be declared in Jan)
Quarter 4/final - Also called as financial year end - (Jan to Mar and earnings will be declared in April)

Now by this time you would have understood how earnings are important for a stock price to move up or down. But depending only on earnings one should not make investment or trading decision. To make decision more risk free you should look into more tools as mentioned below so that your investment decision becomes more solid and you should get excellent returns in future.

New Comers Should Follow to Share Market and Day Trading Tips

New comers to Share market and Day Trading

In the share market you can earn good amount of money provided you follow the principle “learn and then earn”.
Every field requires knowledge and experience to get success so is the share market.
So please don’t misunderstand that share market will make you millionaire or billionaire in one night.

Our website is especially designed for all newcomers to share market and for day trading
So please read, study and then start earning.
Broadly speaking basically there are two types of people in share market.

1. Investors - who buy shares and hold for weeks to months to years and they are called as
short term, mid term and long term investors respectively.

2. Traders - Traders do buying and selling of shares on very frequent basis mostly on day to
day basis and they are called as day traders or intraday traders.

We daily receives emails from new comers that they have made losses in day trading, in delivery , in future trading, option trading and so on, so we kindly advice to all new comers to strictly avoid especially trading unless you gain appropriate and specific knowledge.
After all it’s your hard earned money

Investors

1. Most of the time it has been observed that investor buy/invest in shares without checking its
valuations and when their share prices starts falling then they start worrying and get panic
and take wrong steps.
Because, basically profit booking takes place at shares having high valuations.
So it is always advisable to buy shares at lower valuations or at appropriate valuations.
So don’t invest or buy share without studying about company and their current valuations.
To read more about valuations and how to pick the right stock please Go here
We also provide free guidance and advice to everyone so write to us before buying or
investing in share market at

2. The up and down movement is the characteristic of share market so no need to worry if your
share price comes down from your buying price provided your buying price is at correct or
low valuations. So if you buy shares at low valuations then share price doesn’t fall much
from that level in bearish markets.

3. Once you buy good fundamentals shares at appropriate valuation then no need to change
your decision based on rumors.
Rumors are part of share market.

4. Always keep watching the performance of your shares. Every quarter company declares
their performance (financial results) and based on their performance the share price moves
up and down.
So it is advisable to track the performance of your shares.

5. Broadly speaking no need to sit and monitor you share price on daily basis especially if you
have invested for mid term to long term because the daily share price movement may
makes you to think and worry and at the same time you will keep guessing tomorrows
market direction and status and this may spoil your entire time and day. It is also possible
that this may lead to emotional trading due to which you may do wrong trading.
For more information about emotional trading and how to avoid them please

Traders

Traders are those you buy and sell shares on daily basis.

1. Many new comers do losses in day trading because of insufficient market knowledge.
2. New comers should avoid day trading unless and until they do paper trading practice.
Please Go here to read more abut paper trading practice.
3. Day trading requires alertness and promptness to enter and exit from the trade so it is advisable for day trades to be in front of the
trading terminal during market hours and avoid other activities during market hours.
4. Don’t do day trading just for sake of trading or just to earn few bucks for today’s expense. If you are looking to have success in day
trading then do it by dedication.
5. Don’t try to get profit everyday, because everyday is not trading day. But as you get lots of experience then you can do it everyday.
6. Huge losses can be avoided by not doing over trading.
Please read how to avoid risk by not using margin amount at www.daytradingshares.com/margin_trading_share_market.php
7. Day trading is not one day job or night education which you learn from any site and start trading. You need to get experience,
strategies, techniques and principles to follow to get success in day trading.
All these factors and parameters are mentioned our day trading section please visit and study and gain appropriate knowledge