In the end, following these steps will give you a balanced view of the pros and cons of your investment idea, and allow you to make a rational, logical decision.Step 1 - The Capitalization of the Company It really helps to form a mental picture or diagram of a newly researched company and the first step is to determine just how big the company is.Because ranges in these values differ from industry to industry, reviewing the same figures for some competitors or peers is a key step.
When you start to examine revenue and profit figures, the market cap will give you some perspective.
You should also confirm one other vital fact on this first check: what stock exchange the shares trade on?
Are they based in the United States (such as New York Stock Exchange, Nasdaq, or over the counter)?
Or, are they American depositary receipts (ADRs) with another listing on a foreign exchange?
ADRs will typically have the letters "ADR" written somewhere in the reported title of the share listing.
This information along with market cap should help answer basic questions like whether you can own the shares in your current investment accounts.
Stocks with PEG ratios close to 1 are considered fairly valued under normal market conditions.
Step 5 - Management and Share Ownership Is the company still run by its founders?
Step 2 - Revenue, Profit and Margin Trends When beginning to look at the numbers, it may be best to start with the revenue, profit and margin (RPM) trends.
Look up the revenue and net income trends for the past two years at a general finance website like Yahoo! These should have links to quarterly (for the past 12 months) and annual reports (past three years).
You sit down at your computer with a fresh cocktail napkin or sticky note that has a single ticker scribbled across it - it's a ticker you've never researched before, but something (or someone) has piqued your interest.