Question

assume that you have $5000 that you would like to invest in a single company. evaluate the common stock of your focus company as a potential investment. from the data available in your focus company financial statements, identify the five most important criteria that you would use to make your investment decisions, and explain why each is important.

Answer 1

There can be various aspects into which one can look both financial and non financial which can help to decide whether to invest or not.

Business: Depending on the nature of business the company if the company is engaged in a single product or it is diversified company on can decide to make the investment in the common stock of the company.Single line product can go anytime out of the market demand, however if the company is in diversified business it can be a good sign for investment in such company when the current market prices of the company are seeming to be lower with future growth prospects.

Financial Ratios: Calculation of Ratios and financial Statement of the Company if the company is already existing company. a list of all financial ratios do provide a basis for ready investment even at higher prices if future growth is expected.However for a newly formed company the vision formation and the management of the company, line of business, investment and areas of investment by the business for income and the area where the company has invested has to be considered matters a lot if it is an industrial hub or a monopoly business and the demand for the same in the market.

Goodwill and Reputation: Non financial factors such as reputation and quality of the products in the market also represents the demand of the company in the long run.In such cases it is very rare to find the market price to diminish as the investors know that the investment will be fruitful.

Growth Rate of the company in the Industry: Growth rate of the company can be another factor which can help to decide the investment over a given period.The rate of growth in the company in the past years give an idea of its future over a certain period.These rate of growth ca n easily be available for companies over the financial websites of companies.

Form of the Market: When the market is low even the best of the shares have their share prices low and this is the best time for such investment where there is an offer for sale by investors, maximum of such shares shall be purchased if the growth seems to be beneficial in future.

If the companies have gained access to government projects and has started their investment in the proposals the market share points towards a certain growth in future.

Another area can be the past dividends and bonus declared by the company and future plans to distribute the same can also affect the investment.

Small investment and huge revenue for the stockholders: Also sectors of demand in the market which never go out of form like food and consumables or Petroleum and Crude which have a demand shall be the best areas of investment as compared to airline and other industries which have huge expenditure against their income earned.