In the beginning, every investor has the first question on their mind is that what will be his first step to invest in a company or how to choose a right company to invest and build a portfolio. There are lots of things to understand for an initial investment. You should have good knowledge about its profits and losses. You should also be aware of how long you can successfully stay in the stock market.
Although the stock market does not guarantee for long term profit. It’s a place of the type of risk, where you can ever be rich at any time or another time come back to the down. Therefore, to become a good investor, you must have full knowledge of stocks and its world. Here are some essential steps are given below that will help you to invest better in a right company.
1. Select place to start
There is a simple saying that the beginning is right then everything is right. Therefore, always invest in a company that is familiar with you. You should complete knowledge of its background, management and how those companies planned to make money in share market of India. If you are satisfied with all these things then this is your first step to start.
2. Do not go for cheap, choose the right one – whether it is expensive
There is the big misconception in people that cheaper is always good. They do not see the reasons for its cheapness. Sometimes it may happen that the stock is cheap because its business is growing is slow or very less. Sometimes it can happen that the stock is expensive because in the next few years it is expected to grow faster. That’s why, instead of cheap, you should buy those stocks, which are likely to have higher prices in future to gain more profit, whether it is expensive.
3. Find revenue growth
This one is your third step, where you need to see the company’s revenue growth. Sometimes, it can happen, when companies earn more money in the long run. Therefore, stock prices increase, which generally starts with rising revenues; you will see analyst’s revenues in the form of “top line”.
4. Look for profit margin or bottom line
The bottom line refers to company’s net income or earnings per share(EPS). In reference to “bottom”, describes the net income figure on company’s income statement. The company’s profits margin is the main difference between revenue and expenditure. A company that increases the revenue while controlling costs will probably extend the margin.
5. Find out how much debt the company has
One of the most important works before investment that is check the balance sheet of the company. As always has said that the company’s debt is more likely to be more volatile because the higher income of the company goes into interest and loan payments. By comparing the company with their peers, see if the company is borrowing an unusual amount for its figure and industry.
6. Discover a dividend
A dividend is not just a source of cash payment for a stock investor or this regular income; it is just a sign of a good financial health of the company. If a company is able to pays dividends, then here you need to see their all payments history and find out if the company is raising the dividend or not?