Five steps to-be considered while investing in the stock

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Cash balance

 A company’s cash position is used while buying shares of a company. Through cash position, it is determined that the company has sufficient cash for working capital or not, it can liquidate cash easily at the time of need.

Debt position

 Higher debt on the books indicates that outsiders have higher authority over the company’s assets. The lenders can also have stringent clauses which will not allow the management to take the advantage of riskier opportunities. It means that a higher portion of the company’s profits goes into the debt’s interest. So, generally, a lower debt indicates a good signal whereas higher debt shows a danger sign.

Promoters’ share

 One most important indicator that helps investors to understand which way the company is moving. Promoters are known to information about the company’s prospects, which are not available to the general public. They are the one who perceives the idea setting up a company, he is the one who prepares the Memorandum of Association, Article of Association. So, if the promoters’ share increases, it is a good signal that the company is on the path to greater heights and is a good investment opportunity.

Cash flow

Investors should look at the cash flow statement to see if the management’s performance is supported by the cash inflow or not. A cash flow statement helps to understand where the money comes from and where it goes. Investors should consider the above factors because they could decide on the performance of the firm which means the price that investors are willing to pay today is for the firm’s future performance, investors should be first sure that the company they have invested in is on the right path.

Price to earnings ratio

A P/E ratio decides if the stock value goes up without significant earnings stays up or not which means how much time a stock will take to return your investment if there is no significant change in the business. One should only compare p/e ratios among companies in similar industries and markets .P/E ratio helps investors to determine the market value of a stock as compared to the company’s earnings, or what the market is willing to pay today for a stock based on its past or future earnings.

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