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Beginner’s guide to identify a failing company

01 Mar 2018

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Investing in the capital markets is not risk-free. However, a wary investor can certainly avoid imminent risks and make them work in his/her favour. At specific intervals in a financial year (FY), organizations come out with performance reports. Moreover, independent researchers and other financial services companies also report on organizational performance, which investors can use to their benefit. They may also indicate when a company is going through a bad phase and the right time to abandon ship. One can utilize this information from such analyses in order to earn better returns on their investments.

Here are five signs to identify a failing company:

1) Drop in company’s cash flow

This is one of the major indicators of a company's performance. Keep your ears open for announcements made by the executive board or other credible sources. If there is a negative drop in the cash flow, consider it as a red flag for your investment.

2) Track the company’s stock prices

Comparing the stock price/performance of a company on an annual basis helps you identify stable companies from shaky ones. Observing such trends will give you an edge over others and help you make an informed decision.

3) Return on investment is no longer competitive

Know the yields being offered by the company’s competitors and compare it with your current investment over a year. Earning profits should be your topmost priority at all times.

4) Volatile top management

If the company’s top management is unsteady and keeps on changing, then it would be difficult for the company to maintain its vision and prosper. If it is not even able to retain its talent, it would have a tougher time retaining your funds.

5) Expert reports on company

Never neglect expert reports on a company’s performance. Various independent and institutional economists often review a company and provide their opinion on its performance. Read through these reports to get a brief idea of the company's growth potential and other clues that the average investor might miss. It is not necessary that you take action on every recommendation mentioned in such reports, but having a perspective doesn't hurt.

Due to wide fluctuations in the stock market, a lot of companies go through a continuous cycle of change. Follow these changes over a period of time to identify the trends associated with it. It would help you determine the direction of your investment and, eventually, lead you towards a profitable future.

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Beginner's Corner

Beginner’s guide to identify a failing company

01 Mar 2018

Untitled Document

Investing in the capital markets is not risk-free. However, a wary investor can certainly avoid imminent risks and make them work in his/her favour. At specific intervals in a financial year (FY), organizations come out with performance reports. Moreover, independent researchers and other financial services companies also report on organizational performance, which investors can use to their benefit. They may also indicate when a company is going through a bad phase and the right time to abandon ship. One can utilize this information from such analyses in order to earn better returns on their investments.

Here are five signs to identify a failing company:

1) Drop in company’s cash flow

This is one of the major indicators of a company's performance. Keep your ears open for announcements made by the executive board or other credible sources. If there is a negative drop in the cash flow, consider it as a red flag for your investment.

2) Track the company’s stock prices

Comparing the stock price/performance of a company on an annual basis helps you identify stable companies from shaky ones. Observing such trends will give you an edge over others and help you make an informed decision.

3) Return on investment is no longer competitive

Know the yields being offered by the company’s competitors and compare it with your current investment over a year. Earning profits should be your topmost priority at all times.

4) Volatile top management

If the company’s top management is unsteady and keeps on changing, then it would be difficult for the company to maintain its vision and prosper. If it is not even able to retain its talent, it would have a tougher time retaining your funds.

5) Expert reports on company

Never neglect expert reports on a company’s performance. Various independent and institutional economists often review a company and provide their opinion on its performance. Read through these reports to get a brief idea of the company's growth potential and other clues that the average investor might miss. It is not necessary that you take action on every recommendation mentioned in such reports, but having a perspective doesn't hurt.

Due to wide fluctuations in the stock market, a lot of companies go through a continuous cycle of change. Follow these changes over a period of time to identify the trends associated with it. It would help you determine the direction of your investment and, eventually, lead you towards a profitable future.