Category: Money Tips Date: 2005-12-19
In the last century the stock market frenzy during the late 90's survey showed that retail investors will use a great effort in exploring where to vacation, but they are too mean to spend time to research buy stock. Sounds really rash, is not it? But it really is that people are familiar with common practice. To tell the truth, for most people, turning over the pages of tourist guides, look for a waterfront hotel on the island of Antigua than listed companies, such as understanding of such complex things easier. We prefer to dice to decide which to buy stocks.
But it is hard to believe is this: as long as a little take the time and energy, investors can avoid investing "pure get lucky," the vicious circle. For ease of understanding, we have set out a list of 10 basic questions, each investor will own hard-earned money into a stock before, you should first ask these questions. This approach was inspired by Ram? Charan (Ram Charan) such as corporate advisory division, it does not require you to be painstakingly carried out the financial securities analysis. In fact, some issues are more obvious and basic things sound. But we can guarantee: As long as you buy a stock before actually asking these questions, you are a down-according to a company's long-term prospects for the next bet, not just luck.
This is a company how to make money?
If you do not know what you buy, you pay for it is difficult to judge how much of the. Therefore, buying stocks before, you should look at how the company is making money. This problem sounds simple, but the answer is not always so clear. For example, General Motors, which each year 10 million cars, but unfortunately the company is almost no money in it. In fact, at present almost all of GM's profits come from finance through the company's financial services subsidiary of General Motors Corporation (General Motors Acceptance Corp.) Loans to consumers. And you may guess, the profits from car loans account for only half of the total profits, while the rest came from the adoption of the General Motors subsidiary ditech.com this issue of housing mortgage loans (that is, the ubiquitous television commercials that companies). This does not necessarily explain GM's stock on the bad. But obviously, this allows you to this company's risks and potential profits have a better understanding.
A quick glance at the "Fortune" 500 company information, you can see dozens of examples of that. This is why each and every investor must look at the company's latest annual report. You can learn more about the annual report the company's business structure, and every one business, sales and earnings data details. You can also find another key questions: whether these gains may be converted into cash in the hands of investors? While the "net" and "earnings per share" these things will become a commercial media headlines, but these are only the concept of accounting. To shareholders, the most important thing is real, iron nails in cash, whether in the form of cash dividends are distributed to the shareholders, or in the form of re-investment into the company operations, thus promoting the company's share price rose. Opening the annual report of the cash flow statements, look at the company's "management to bring in cash flow" is positive or negative, as well as cash flow is increasing or decreasing. Look for to see if there is no such danger signals: (income shown in the table) net profit in the growth, while cash flow is decreasing. If so, it might be a sign that companies use a "creative" accounting techniques to book profits overstated, which is no benefit to shareholders. Enron is an example.
2 sales are real do?
Speaking of cash, we have to understand one of the points is: Under the accounting provisions in an amount of cash Daozhang indeed long before, the company can be included in sales revenue (the worst case, this amount of cash, never to not account). This may significantly affect the stock you intend to buy the current price. Then how do you know whether the company has such a thing? Can usually be submitted from the company's earnings report is very clear to see that. The technology company RSA Security as an example. In the first quarter of 2001 financial report notes, the company disclosed that it had turned to adopt a more aggressive (but also the legal) accounting methods at the same time, the software will be distributed to dealers included sales of its ─ ─ Why must wait until the end-user actually bought the product after the recording of it?
Sometimes, this has a significant warning signs of more subtle manipulation of earnings. For example, for those sales and the growth rate much higher than the competitor's company to be vigilant. Forensic accountants Jack? Ciesielski (Jack Ciesielski) said, "If you do not see the company's sales growth led to the specific reasons, for example, companies selling a product in particular, then you have to more than eye-a", he is authority's "Analyst's Accounting Observer" (Analyst's Accounting Observer) of the publisher. Addition, we must be careful that the only way to achieve sales growth is the annexation of other companies companies. If a company must purchase an annual average of several firms, its motivation may be the short-term management and to meet Wall Street's expectations. From a long-term point of view, a number of independent companies that together might be a mess, and pay a heavy price. A total of 4 1 [2] [3] [4]
