/biz/ - Business & Finance

>>24225749
I'll be glad to help anon. I just started investing two months ago but this stuff is easy to learn, thankfully.

First of all the basics of DD: Company financials. You need to understand the company's financial situation whenever you invest so that you don't get into a sinking ship. Bad financials = risk of share dilutions (issuing new shares -> lowering your relative ownership of the company and usually lowering share price), risk of the company taking interest-bearing debt (further hit to financials down the line) and risk of bankruptcy. So read up on how to understand financial reports. Plenty of information to find just by googling. I won't go into too much detail but the most important things you need to know about a company's financials are: current & total assets and liabilities (liabilities include debt too) and working capital. I like to get more technical so I calculate some simple ratios that help me understand the financial situation better. Good ratios to learn to use are for example Current Ratio and Equity Ratio (I use those myself).

There's also the question of share price valuation. I'm kind of new at that too so my knowledge is kind of basic, but in a nutshell you probably want to buy undervalued shares and avoid overvalued shares. I like to calculate the P/B (price to book) ratio to see whether the share is overvalued or undervalued compared to a company's equity. Of course you also need to consider what assets (property, shares, etc.) the company holds and whether there is positive cashflow. Market cap is also a pretty important indicator of the company's size. If the market cap is tiny, the company financials are good and the company has great assets then what's not to like? Small market cap combined with great prospects means big gains in the stock market.

Pic related is about how I do my DD. I start with the share and the latest financial report and then I dive into the company's projects.