source: www.pexels.com
Here are the things you should take a look on while buying a stock of a company for long term investment.The things include industry type,industry trend,company's policies and their management decisions,their financial statistics.
The factors which determines the quality of the stock:
1.Debts
Debts are company's loans brought from some sort of financial organisations like banks etc,.The first factor which should be noted while picking a stock is checking their debts.If the debts are higher then the company should repay them at regular interval of a time.Then the income of the company will be not benefit themselves much.But a debt to equity ratio of 2 is advisalble,if it exceeds 2 then buying the stock is not a good idea.In simple words a debt two times of their equity is always a good move to buy.Sometimes the company might have bought more debts for improving machinaries,buying fixed assets or improving the production.All of these should be checked while checking the debts area.For example let X be the company and Y be the equity then the company's debts should be in a range of 2Y.Having a considerable debts alone cannot make a stock a good stock,all the below factors have to be checked simultaneously...
2.Reserves
Reserves are company's funds that are kept aside for a specific purpose like buying fixed assets,paying bonuses,for maintainence and repair works in the future.Reserves of a company should increase positively for the past three to four years.If the reserves are in positive for the past three to four years then its a good to go sign but remember all the factors we are discussing here should be in an advisable range for buying..
ROCE,in simple words it is the return on investment or it's the profitability percentage.It is usually denoted in percentage.If a company is for more than five to ten years and still the ROCE is still below 10 percentage then keep the stock aside.Always pick a stock which is having ROCE greater than 10 percentage.Greater the ROCE,greater the chance of getting good returns..
Pledged shares means getting loans against the shares that the promoter holds.Usually it is not a good way to raise funds.If the company is having pledged shares then it is a really bad sign.Always pick a stock which is having zero pledged shares.If the share holder cannot pay the loan taken on shares then they will lose their shares on the company which can make a huge difference in the company's management.Usually when the management changes, the stock value beings to move downwards or it will become bearish,so zero pledged shares are always advisable..
Fixed assets are assets that are purchased for long term use.Fixed assets include buildings,land,machinery etc,.If the company's fixed assets are increasing for the past three to four years then it is a great option to buy the stock of the company.
Note:Remember all the above factors should be in a positive range to pick that stock.One factor being good alone cannot make it a good stock.Still there are several other factors such as industry type,industry trend,company's policies and their management decisions to make sure that the stock will give good returns...
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