A lot people, especially stock market newbies, make researching a stock for investment purposes seem so complicated. It actually is not as complicated as you may think. I would agree, however, that researching a company to potentially invest in is very time consuming. Nevertheless, any serious stock investor would take some time to review the details of a potential investment.

So how do you research a company before you invest? You would research a company like a bank would research you before they give you a loan. Let me make this clear, when a bank gives you a loan they want to make sure that they are going to get back their principal plus interest. When banks make loans they are essentially making investments. Banks make investments in you. If you really think about it YOU are a business.

Moving on, when banks research you before they give you a loan, they ask for every financial record necessary. They request your tax returns, bank statements, a list of your assets, list of your liabilities, and employment verification. After they have all the necessary documentation, they begin to crunch the numbers. Finally, once they have evaluated your financial position, they will determine if you are a worthy investment.

Fortunately, publicly traded companies are required to report and publish all financial information regarding the company. In addition to that, corporations are required to report any events that may adversely affect the company’s financial position. Furthermore, at the end of a company’s fiscal year they will release what is called an annual report. This report details the company’s business, business model and strategies, events that occurred throughout year along with financial reports.

As a stock market investor you want to go through these reports very carefully. You want to pay special attention to the financial statements. You want to know the company’s assets and liabilities, which you would find on the balance sheet. You want to know what a company’s cash position is which can found in the cash flow statement. You also want to know how much the company generated in sales, the cost of sales (expenses) and how much was left over after expenses, their PROFIT. This information can be found within the income statement or profit & loss statement.

Furthermore, you should review the financial statements for the past couple of years to determine if the company is consistent. You should take a look at the industry that the company is involved in. Is the industry changing? How is the company reacting to these changes? Are they a market leader? You also want to review the company’s strategies and goals.

After you have scrutinized the company as a bank would do you, then you can determine if the stock in that company is worth investing in. As you can see, researching a company is not as bad as it seems. Of course, the researching process is time consuming, but would you rather invest in a company that you know nothing about. Ask a bank if they would give you a loan if they knew nothing about you?