Your guide to researching companies
Know how to scope out a company you’re thinking of investing in? Here’s our guide to simple investment research.
What you will learn
- Why researching companies is important
- Where to find information
- Which facts and figures are important
When you buy shares in a company, the growth of your investment is determined by how that business continues to perform. That’s why it makes sense to get informed before you buy. But how?
The key is not to make assumptions about a company’s obvious strengths and weaknesses – the reality can often be quite different.
Luckily, because public companies are listed on the stock exchange, they have to publish information that can help investors to make informed decisions. There are also useful online tools to help with your research.
How to get started
Reading articles and exploring investor bulletin boards is a good place to start, but you should always back this up by your own research. Some writers might have a vested interest in promoting the company or pretend to know more than they do.
Some of the questions to ask are:
- Is the company’s sector likely to perform well?
- How strong is the company’s track record?
- What skills and background does the management team have?
- What is the company’s revenue growth, profit growth and cash balance?
- Does it have many competitors?
- Is it considered a high risk, high growth company or a more stable one?
- What do the experts think?
Where to find information
To find out about a company’s track record, cash balance and management team, you can check out its annual report and accounts. You can find these on the company’s website – it’s usually in the ‘investor relations’ section.
Annual reports also contain facts and figures about a company’s performance over the past 12 months and how it compares to previous years. There are also useful sections on what the company’s strategy is for the next financial year.
This knowledge will allow you to compare the company with others in its sector. Online investment platforms and sites like ADVFN also provide research tools, performance charts and commentary on a vast array of companies.
A company’s annual report provides an in-depth view of its performance and actions over the past year.
What to look out for
How you interpret information is also important. A company’s recent share price performance, for instance, will give you an idea of what other investors think about its future. A falling share price could be a good buying opportunity, but could also show that the company is struggling.
Keeping an eye on the news is also a useful way to judge how a company’s sector is doing. A clampdown on gambling is likely to hurt gambling companies, whereas a high oil price will probably fuel the fortunes of oil companies.
It’s likely that an investment in a company will be just part of a mix of assets in your portfolio, however. To find out how to blend investments in your portfolio, read our guide here.
Risk notice
Any information provided should not be considered personal advice. Past performance is not a guide to future performance. You may not get back the full amount you invest. If you have any doubts about making your own investment decisions, seek financial advice.
