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  • Category: Stock Market

    What are the factors which give idea about company's strong fundamentals?

    Interested in investment in share market? Then go through the factors to identify the company's strength as suggested by our experts.

    Share market is full of uncertainty and one must be careful to invest in it without proper research like technical and fundamental of a company in which he or she is investing. I want to know what are the different factors which idea about company's strong fundamentals.
  • #141071
    In normal common sense itself we see the following things in a company's financial parameter an historic data to judge about its strong and stable standing.
    1. Profit: If a company has a history of steady profit, then that is a good signal
    2. Capital and reserves: A strong capital and ploughing back of part of profit steadily increases the Capital +Reserves figure. That shows strength of the company
    3. Book value of shares: A signal of financial strength and interest to shareholders is the book value. Usually the book value will be same as the share face value in the start. Then it slowly increases. If Book value is a few times of the face value and steadily increasing signals god financial strength and shareholders can expect bonus shares in the near future.
    4. The next important financial parameter is the Debt-Equity ratio. If the outstanding debts are just 2 times of the capital and reserves then it is a good financial strength. If debt increases in relation to the own funds, then that gives a not so good signal.
    5. Dividend history. If the company has a good dividend history that is good for shareholders.
    6. Market price and volume of shares: Slowly and steadily increasing market value and active trading in volume of the company's shares show the faith of the investing market on the company. The share price should not fluctuate much and frequently, but should change only within a small range.
    7. Though there are many other parameters and ratios, these are sufficient for most common evaluations as a normal small investor.
    8. Other than financial matters one should also be aware about the management and ownership/ directors changes; any disputes and cases by or against the company. One should also be aware of any government actions that may affect the functioning and profit of the company.

  • #141081
    I only want to add something to what has been explained beautifully by Venkiteswaran.
    Along with choosing a good and strong company one should also choose a good time and opportunity to invest in it.
    Coming back to the question,
    1. it is of utmost importance to see whether the promoters have a good reputation for giving back to the investors. I mean dividends, bonus, splits, rights issues etc.
    2. If a company has a monopolistic hold of market share in the field in which it deals, it may be regarded as a strong buy if you invest in it.
    3. Along with steady profits as already explained by Venkiteswaran, if company's sales figures have a steady up-trend then the company may be regarded as a strong company.
    4. If promoters hold more than 45 to 50% shares or are attempting to increase their share of holding one can be sure it will prove to be a good buy.
    5. If a stock is selling at a price below or equal to its book value it may be a good opportunity to buy it given other factors as explained above are also at reasonable level.

  • #141091
    Apart from the points already discussed by our respected members, I would add a few points signifying the strong fundamental of the company.
    1) Consistent quality products - If the company produces the products having IS 9001 certifications and the consumers have been benefited with durability of the products at a very reasonable price and there is upward swing of the customers with the time, we can say that the company has the strong fundamentals.
    2) Share - prices- If there is an upward movement of its share - price within a given interval, it indicates the strong fundamentals of the company.
    3) Expansion of the units or modernisation - If the existing capacity is being expanded or modernised, it would reflect the customer's sentiments with the products and the volume of the sales would show its strong fundamentals.
    4) Support from the financial Institution- If the company is getting tremendous support from financial institutions in the event of its upgradation, that shows the robust health of the company.
    5) If the board of directors have excellent rapport and have enough exposure in the business - field, this would have favourable impact in the fundamentals of the company.

  • #141163
    There are many signals that people look for better company to buy shares or the funds investment. Here are some of the things that may help choose the right company.

    1. P/E Ratio : This signal can tell you how good is the company and how effectively it is managed to sell the products to others.

    2. Growth products : There are some of the products that company may come up that helps the growth. It could be service or product but it has to be contributing towards the growth.

    3. Dividend history: Consistent liquidity is a good indication of the company. And the dividend is one such indicator in such case. I have found that this can be really good for those who are trying for better company share.

    4. Blue chip company : It helps if the company is blue chip. Though the share value will be lot higher for such companies. But you can guess that such companies offer a lot more benefit in terms of return as they are more focused on long term growth.

    5. Liquidity : You can find this data from the financial history. And this data alone can show you where you stand in terms of company growth. It may not mean that liquidity means always a good company. But it shows it's capacity of giving dividend and returns to the share holders.

    These are some of the points which I have found for the better company. And choosing the company would be lot better if there are some of the other analytical indicators are taken into consideration.

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