Research advisory firms in the stock market use a variety of parameters while evaluating and selecting stocks for investment. One of the most commonly used parameters for best stock research includes earnings and management pedigree.
Let’s take a detailed look at these two parameters used for best stock research to understand what they represent and their importance.
Earnings – Why it is an important parameter in best stock research?
A company’s earnings in simple words refer to its profits. The basic formula to find a company’s earnings is to subtract the costs from the revenue.
Earnings per share (EPS) is a parameter used for best stock research to compare the earnings of different companies as every company has a different number of shares owned by the public. It is calculated by dividing the earnings left over for shareholders by the number of shares outstanding.
Earnings are important because it is what drives stock prices. Strong earnings will usually result in the stock price moving up whereas weak earnings will result in stock prices taking a beating.
EPS is an important indicator of a company’s financial health. Investors and analysts keep a close track on the earnings reports released by companies every quarter as increasing earnings reveal that a company is on the right track to provide good returns to investors.
Management pedigree – Why it is an important parameter in best stock research?
A visionary, decisive and transparent management is the backbone of any successful company as the most crucial decisions of the company are taken by the management. When shareholders invest their hard-earned capital in public listed companies, they expect that the company will create value for them.
However, it doesn’t always happen that way. There have been numerous cases of fraud and misappropriation of funds by management which has eroded investor wealth. Some of the best-known examples are Ranbaxy, Leel Electricals, DHFL, and IL&FS.
That is why management pedigree is an important parameter in best stock research. By taking a detailed look at the management’s past history and success or failure of projects managed by them in the past can give a brief picture of what to expect. Wipro, HDFC Bank, Tata Consultancy Services (TCS) and Infosys are some prime example of professionally well-managed companies which have created enormous wealth for their shareholders.
To summarize earnings and management pedigree are two very important parameters among the numerous parameters used for best stock research. For best stock research one should ideally look at other factors such as the debt level of the company, its future growth prospects, and other key financial ratios.