TIPS FOR PICKING PROFITABLE STOCKS 2

THE HISTORY OF THE COMPANY AND PAST PERFORMANCE
A prospective investor in a company will do well by checking the dividend and bonus history of the company He wants to invest in.This is because the future of a company can be predicted from its past.All this can be found in Annual reports of companies.Past performance is however, not a guarantee for future performance.

THE TYPE OF MARKET THE COMPANY OPERATES IN

Is the company the market leader?How often do people purchase the company's product? Does the company have too many competitors?Is the product of the company a necessity or does it have a close substitutes?These are some of the questions you must ask yourself before you take your investment decision.For instance,companies whose products are necessities will be a good buy any day.Products like Sugar, Salt,Cement and some other essential goods are few examples.
I will now move over to the Quantitative tips of picking profitable stocks.Enjoy your reading.
QUANTITATIVE TIPS FOR PICKING PROFITABLE STOCKS
These are Mathematical/Accounting ratios.We have so many of them.But I will dwell on a few that are frequently used in financial journals and Newspapers.These ratios are very simple to understand.They are:
A.Earnings per share EPS
Earnings per share is calculated by dividing the profit after tax of a company by the number of shares in issue.The rule here is this:The higher the EPS the better the stock.A company with EPS OF N6 is better than another company with an EPS of N3 .This information can be found in Financial Newspapers like Stockswatch,Financial Standard, Money wise,e.t.c.
BPrice per Earnings P/E
The price per earnings ratio is derived by dividing the price of the stock by the earnings per share of the company.This is a very important ratio, because it indicates the number of years it will take before you recoup your investment.The lower the p/e ratio,the better the stock.That is, the lower the number of years it will take to recoup your investment.A stock with a p/e ratio of 5 is better than another stock with a p/e of 10.I will discuss this in greater detail later under 'pricing of securities'.
DIVIDEND PER SHARE/DIVIDEND YIELD

The dividend paid by a company is very important.This is because ,a stock of N50 per share may pay a dividend of N1 per share while another stock of N25 may pay 80kobo per share.I need not tell you which of the two companies is the most profitable.
Dividend yield is calculated by dividing the amount of dividend paid by the price of the stock.The higher the dividend yield the better the stock.Stockbrokers and Investment analyst recommend stocks whose dividends yield is 5% or more.Any stock below this is not advisable.However,you will learn later on this blog under "when to buy and when to sell' that you can still buy when the dividend yield is below 5%
A Combination of these tips will help you to make the best investment decision from time to time.
Good luck!