7 Simple Steps for Shares Selections


There would be a lot of articles out there to give you guidelines on how to select shares. Perhaps you are not even care about it until you starts to ask people around. In my recommendation, here are the seven (7) simple steps for shares selections.


1. Company should makes a reasonable Profit Margin. 
This is a very simple fact for everyone to understand. In order to get the fast fact, gross profit margin and net profit margin is used to determine the strength of the profit in that company. For example Gross Profit Margin should at least 20%, Net Profit Margin be should at least 10% for comfortable believe that it's really making a profit higher than EPF average 6% yearly dividend.


2. Company that pays a reasonable dividend rate over annual Profit.
Even though these companies with dividend surely could afford to pay the dividend, do they really make a reasonable Profit Margin as stated above?


3. Company that Big Corporate has interested in. 
This is a very simple step to follow as Big Corporate like EPF did their research before putting money into the respective companies as investment.


4. Companies that have acceptable Current Ratio

This simple ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The ratio would and should be at least 1.50 so that it gives you sometime before it starts to downgrade towards 1.0


5. Current Assets Proportion 
There are simply 3 main items in the current assets: cash, inventory, and receivables. If the highest values falls into inventory as compare to total current assets, inventories has "kept" all the money, careful with the old stock. If the highest values falls into the receivables, means money is kept under receivables, careful with the debts. The most comfortable zone is that cash should have at least 35% of the total current assets proportion.


6. Business Nature Proportion
Understand the business nature would definite let you know how to define the proportion of the non current assets and current assets value. If a business has more non current assets than current assets, careful with the loan borrowings that company is capable to payback for how many years to come. My simple formula is (Current Assets - Current Liabilities - Long Term borrowing), if it turns out to be negative, that means Fixed Assets need to be sold in order to cover the loan.

7. Buying Low Selling High from the chart. 
One might forget to know that you are actually involve in shares, and not takeover a company. In shares, buying low and selling high is a simple step. How low is low and how high is high is definitely personal preferences and this preference is actually human with human interaction. Once you look at the chart, you would probably aware where should you need to buy and sell.

If the price is RM10.00 per unit, in order to make 100% out of it, it needs to be RM20.00
If the price is RM1.00 per unit, in order to make 100% out of it, it needs to be RM2.00

The fluctuate of the price and choosing the company unit price shares is deemed important to be shown in the chart. Not forgetting the total of six steps above.






Thanks for reading.

Comments

  1. You're right, there are plenty of articles already have about this topic. Selecting shares is very important, because you provide lot of money after share or more. So to achieve the best result from those share it's effective to analyse these seven steps. A lot of us are tight on budget. You might want to look at panxpan's finance summary module which has a free trial and lets you analyze your business revenue and expenses.

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