Your personal finance
Which company’s shares should you buy?
Having a surplus from a salary earned in Malawi is a big achievement. Admittedly, sometimes it’s all about how disciplined we are at spending on necessities versus non essentials. But occasionally, all of us do have a surplus that we sometimes wish to invest.
One option would be to turn to the stock market. However, to those not yet initiated to the workings of a capital market, deciding on which company’s shares to buy may be a hurdle. It may be wise, therefore, to take a look at how you can compare the performance of one company to the other.
Some of the important questions to ask before buying a company’s shares are: How healthy is the company you are interested in? Where does its revenue come from, and where does it spend its money? How much profit is it making now and will it be able to sustain such profits long enough? Companies largely provide answers to such questions in their financial statements. But if the financial statements are Greek to you, then find a financial market advisor – which most investment banks and discount houses have.
Publicly traded companies (those listed on the Malawi stock market) make their financial statements available to everyone—shareholders, industry analysts and competitors as well. The downside is that they may not be as detailed as the company’s internal financial statements.
You might want to invest in a company for many reasons. Perhaps it is a leader in the industry. Or its chief executive or general manager has a great record of turning companies around. Or its products are on the cutting edge of technology and hence selling like hot cakes.
But if the company is not turning a profit, or doesn’t show strong potential to become profitable over the medium term, you probably wouldn’t want to invest in it. A firm that is more profitable will also have its shares appreciating over time leading to a relatively high degree of share liquidity (easy to sell your shares if you need cash).
The income statement (which keeps on changing name) tells you if the company you are interested in is making a profit. This is why the income statement is at times also called a profit-and-loss statement. It shows a company’s profitability throughout the year—typically, by presenting year-to-date summaries of the company’s operations. In addition, the income statement tells you how much money the company spends to make that profit—that is, what its profit margins are.
This is your starting point in assessing the health of the company you wish to invest in (or buying shares). However, if your money is hard-earned, and not obtained through Cashgate, find a stock market analyst/advisor to help you make the most optimal investment decisions – unless you belong to the world of finance yourself.
Have a blessed weekend as you plan to invest your hard-earned cash in shares of a sustainably profitable company!
