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Investment Research Guide

Investment Research Guide

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Published by markgran
This is Guide on how to choose a stock to buy found at GranVestor. Learn on how to analyze stocks and make wise investment decisions.
This is Guide on how to choose a stock to buy found at GranVestor. Learn on how to analyze stocks and make wise investment decisions.

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Published by: markgran on Aug 23, 2010
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05/07/2012

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In this post I will include descriptions of investing ratios and what I look for when Ichoose a stock to invest in.
Quality 
Growth
EPS%
This is the averagegrowth of their Earnings Per Share. I use the averagesfor the last 3,5, and 10 years.To calculate the
Earnings per Share
REVENUE%
Profitability 
Profit Margin,
or
PM
,
 
This is a post written by Mark Gran and can be found athttp://granvestor.wordpress.com/2010/08/23/investment-research/ GranVestor Value Investing Blog
 
Operating Margin,
or
OM
, is the proportion of revenues remaining after paying thecosts of operating the business, such as labor costs (wages), raw materials, overhead,depreciation and amortization, selling, general, and administrative expenses,advertising, etc. It is similar to the profit margin except it does not include all costs, soit will be higher than the profit margin. Operating margin can be calculated bydividing Operating Profit by Net Sales.
Return on Assets,
or
RoA
,
Return on Equity,
or
RoE, 
Management 
Insider Ownership
is how much of the stock is owned by the management of thecompany. I look for stocks with a high percent of insider ownership, under the theorythat when management are shareholders, they will act in its own self interest, andcreate shareholder value in the long-term.
Financial Health
Current Ratio
measures how liquid the company is and shows if they have theresources to pay of their liabilities over the next 12 months.
 
Debt/Equity
D/E, Debt-to-Equity,
shows how much debt the company hascompared to its equity. A high debt/equity ratio generally means that a company hasbeen aggressive in financing its growth with debt. If a lot of debt is used to financeincreased operations (high debt to equity), the company could potentially generatemore earnings than it would have without this outside financing. However, the cost of this debt financing may outweigh the return that the company generates on the debtthrough investment and business activities and become too much for the company tohandle. This can lead to bankruptcy, which would leave shareholders with nothing. Ilook for companies that don’thave too much debt that is less than 1. If theydo have alot of debt I look to see how efficient the company is at turning that debt intoearningswith ratios such as the Returnon Assets.
Valuation
Price/Earnings,
or
P/E
, is the price of the stock divided by its EPS of the last twelvemonths. This is probably the most popular metric to valuing a stock. In general, a highP/E suggests that investors are expecting higher earnings growth in the futurecompared to companies with a lower P/E. However, the P/E ratio doesn’t tell us thewhole story by itself. It’s usually more useful to compare the P/E ratios of one companyto other companies in the same industry, to the market in general or against thecompany’s own historical P/E. I look for companies of with a P/E of less than 15 andbelow the industry averages.

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