Company evaluation before share purchasing

Own Correspondent

There are more close to seventy companies listed on both the Zimbabwe Stock Exchange and the Financial Securities Exchange (FINSEC). One does not have to buy the first business that strikes their eye.

Every business looks great on paper. Every investment opportunity looks worthwhile but the goal of any analysis should be to critically analyse the reasons for owning a business. Successful investors are those who can be most critical of a business and, after being so critical as to try to kill the idea, if the business still looks good, then it’s an investment worth making.

Just like one most likely wouldn't buy a car, without first doing some research on their preferred model and its closest competitors. In the same vein one shouldn't consider investing in shares without knowing something about the business, either. Research is a part of an investor's due diligence. Whether they work with investment professionals or on their own, it's wise to do their homework. The famous Benjamin Franklin once said, “An investment in knowledge pays the best interest.

While investors cannot know everything about any given investment, investors should know enough to have reasonable forecasts about the future. Finding a good share means finding a good business that is priced at a reasonable valuation. Here's how to evaluate companies before purchasing their stock.

Businesses that issue shares are required to produce and publish financial reports, and those reports are where one should begin when deciding which shares to buy.  A company’s annual report indicates the general state of the company at the end of the last fiscal year, and as a potential investor one should read them carefully and pay attention to details. But a lot can happen in the days between annual reports. If you’re considering investing in a company, you should check out the latest facts any way you can.

Researching about shares that you're thinking of investing in can be overwhelming and intimidating when you’re new to the process. But researching stocks and investments isn't as difficult as it seems at first glance when you understand how to read financial statements. Reading an annual report is the key to being able to value a company. With a little bit of practice, you can learn how to look at the numbers and see what appears to be going on within the company. Concepts such as accounting goodwill, depreciation, and diluted shares outstanding will begin to make sense.

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Many companies hold analysts briefings and investors after they report their earnings each quarter. One or two of the senior executives go through the results and explain what happened (with a hefty dose of positive spin), and then take questions. In most cases, only analysts and institutional investors invited by the company can ask questions, but anyone can listen. Companies usually announce these on their websites. Most companies also post a recording on their websites.

These calls are great sources of information about where the business is headed. The questions and the answer give one a good sense of what concerns experienced analysts have about the financial results and the prospects for the future. The managers answering the questions may be candid, evasive. The information helps one track the progress of the business, or find out where it’s been and where it’s going to a prospective shareholder.

To invest in shares on companies listed on the Zimbabwe Stock Exchange and the Financial Securities Exchange one can simply visit www.ctrade.co.zw to register to buy and sell shares anytime, anywhere.

NOTE: Please consult a financial advisor for investment advice and answers to any specific questions you might have. The information contained in this article is not intended as a substitute for investment advice.

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