There are various investors who believes that investment in equity, commodity, currency is similar to gambling and good returns are merely results of good luck. However reality is different as good returns are results of systematic and disciplined trading practices. By investing in a company’s share you get a part of ownership in that company depending on the number of shares you hold. More number of shares implies your ownership will be greater. Therefore it is required to perform quality research work before investing. Financial advisory services providers can also be consulted to get useful suggestions. To understand how a company is going to perform both quantitative and qualitative factors are to be studied. Investors mostly gives emphasis to quantitative factors like debt-equity ratio, pay-out ratio, dividend ratio and neglect other qualitative factors. But ideally this should not be the case as both are equally important.
Some important factors which investors should consider before investing are discussed below:
1) Business model which company is following
Business models tells about how company creates its values and generates revenue. So before studying different ratios mentioned in financial statements understand what company actually do and how revenue is generated.Understanding business model enables to identify factors which actually contributes for the growth of company.
Performance of a company hugely depends on its management as even well planned business model fails if leaders are unable to execute plan in an appropriate way. Details of management is easily available on company’s website. You can study their educational background, past work history.
3) Rules and regulations
There are certain rules and regulations which industries follow. In a specific industry two or three companies represent the entire industry and government usually states how much profit they are allowed to make. If a company has potential to earn profit more then it then also it can not. Investors should study these rules and regulations to identify potential risks and rewards of investing.
4) Competitive advantage
Sometimes when a company faces strong competition then some of its resource are utilized to fight against that competition and not used for generating good value for shareholders. In long term a company’s success depends upon its ability to maintain competitive advantage. When company’s achieves it then its shareholders are likely to receive good returns. Therefore ensure that whether the is company able to sustain competitive advantage or not.
These are some of the factors which has its impact on a company’s performance and further decides how much revenue a company is likely to generate. Traders can take experts recommendation in the form of mcx tips , trading tips and more to be on safer side and trade in an efficient manner. Blindly investing in market will never help to succeed here. Always try to evaluate company both qualitative and quantitative factors and invest according to your risk bearing capability.