Buying a stock of a good company with good financial performance and position means that you just have to sit tight and hold on to the stock for a long time which will give you descent or multibagger returns in the future. We have to select stocks based on the analysis we make and that analysis should include everything related to the company.
The five factors include fundamental analysis, top level management of the company, technical analysis, industry outlook and dividend history of the company.
Let’s look at each one of them:
By fundamentally analysing the company, we get to know the financial position and performance of the company over the years. We need to check the statement of financial position, statement of profit and loss and the cash flow statement.
The SOFP shows the assets and liabilities of the company and helps to determine the financial position of the company. It shows the net worth of the business.
The SOPL shows the revenue generated from operations and the expenses incurred by the company.
By carefully analysing SOPL, we get to know the growth of the revenue which indicates the growth of the company. We can also know if the company is able to control it’s expenses and operate efficiently.
The cash flow statement shows the cash in hand of the company which gives us an idea about the liquidity position.