Beginners’ guide to researching companies
- 3 min reading time
Finding out about companies that you could invest in can be tricky and time-consuming. Here’s our guide to simple investment research.
What you will learn
When you buy shares in a company, the growth of your investment will be determined by how that business continues to perform. It makes sense to do some research before you buy, but how do you go about it?
The key is to avoid making assumptions about what may seem like a company’s obvious strengths and weaknesses. The reality can often be very different.
Fortunately, because public companies are listed on the stock exchange, they’re required to publish information that can help potential investors to make informed decisions. There are also useful online tools that can aid your research.
How to get started
Reading articles and exploring investor bulletin boards is a good place to start, but this should always be backed up by your own research. Some authors might have a vested interest in promoting the company or pretend to be more knowledgeable than they are.
Some of the questions you should think about include:
- 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 like?
- Does it have many competitors?
- Is it considered a high-risk, high-growth company or a more stable enterprise?
- How is it viewed by experts, for example, city analysts?
Where to find information
To find out about a company’s track record, cash balance and management team you can take a look at its annual report and accounts. You can find these on the company’s website – 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 which will outline the company’s strategy for the upcoming 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.
Did you know?
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 this 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 prospects. A fall in the share price could be a good buying opportunity, but it could also indicate 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 legislative clampdown on gambling is likely to hurt gambling companies, whereas a high oil price will probably boost 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.
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.