Quality of Promoters
Promoters are the ones fully responsible for managing and overseeing the day to day operational activities of the company.
A company can experience growth and longevity only if the promoters of the company are of qualified and above average in managing the business affairs.
Hence a quality check on the promoters of the business is a must while considering investment.
High Gross Margin
Gross margin is the difference between revenue and cost of goods/service sold. Hence, it a direct measure of the profits incurred by the company.
When a company sets a high gross margin, it increases its affordability to invest in exploration of new markets/consumers, equipment’s, research and development. Thus adding to its growth value.
Return on Equity
Basically what the term refers to is, how much profits a company generates through each unit of investment from shareholders’ equity.
ROE is a key parameter in selecting a good stock as it reflects the company’s efficiency of utilizing shareholders’ funds. A good performing company would have its at ROE at or above 20%.
Setting a threshold of ROE above 20% is ample in ensuring that the company one has invested in has an efficient model in allocation of funds for its growth.
Cash Flow is the money going in and out of the business for a given period of time(usually standalone or consolidated).
It is important to analyze Cash Flow statements of a firm before investing as it stands as a measure of liquidity.
A company is said to have good operational growth if its Cash Flow stays in the positive. Thus, gaining bargaining power as it is not dependent on its creditors for operational activity.
Debt incurred by the company is reflected on its Balance Sheet. If the debt level of the company is lesser than a quarter of its equity, then the company can be considered for a healthy investment.
A note to keep in mind is that the debt level of a company also indicates that amount of money that flows out of the company’s profits in the form of interest.
Longevity and Scalability
A company can only deliver when it is growing exponentially and is on a constant lookout to expand its scope of operation and in search for opportunities to enter into new markets.
Investing in such a company at an early stage before the market in general becomes aware of its potential can grant one the edge of investment at a cheaper price.