Picking a profitable company

For many people, it is boring to analyze the market and company finance. But if you can spend some time and energy on analyzing the market and company finance, you can greatly enhance your chance of making money in trading shares. Before you put your hard-earned money into the stock market, you should ask yourself these questions. In fact, these questions are pretty simple.

(1) How the company earn its money?

If you do not know what you are buying, it is hard to judge how much you should be paying. Therefore, you should know about the company. First you should try to understand how the company make its money before you buy their shares. Every investor should study the company’s recent annual report and financial statement. From the annual report’s income statement, you should find out the detail of the company’s business and each business’s sale volume and revenue. From these, you can find out the answer of the key question: Can these income be converted into cash? Although ‘net income’ and ‘earning per share’ are the benchmarks to judge the earning ability of the company, you should know that it is only an accounting concept. For shareholder, the most important thing is cash. No matter the profit is distributed to shareholders as dividend or reinvested into the company, the company need cash.