Why should one analyse companies while analysing stocks?
What happens to the company affects the price of its shares on the stockmarket and hence, your investment. The legendary investor Warren Buffet (incidentally, once the second richest man in the world) says that he never invests in a company whose business he doesn`t understand. As investors, we will do well to follow his practice. So, knowing about companies is the first essential step in investment. You will need to know the business a company is in, and how is it doing both in absolute terms and in comparison to other companies in the same business. To do that, you have to look at the financial performance of companies and pick up the star performers. You will also need to look at the future of the business itself. Is it nearing the end of its life cycle? As investors, we hope to participate in a business with a lot of scope for growth.
