Kavan Choksi Speaks on The Need for Calculating the Value of a Company Before Investing in Shares
If you are a beginner when it comes to sharing investments, you should take some time out to learn about the share market. You should be able to select quality companies for your portfolio. In order to get the best companies for your investment needs, check the following factors-
- The companies should be large
- They should be managed well
- They must have a profitable balance sheet
- They should enjoy a competitive edge in the market
- They must show you the potential to earn rewards in the future
Kavan Choksi is an esteemed entrepreneur who is fond of travel and photography. He has the experience and valuable skills when it comes to business finance and equities. According to him, when you are buying shares, you need to check the value of the company. The value is evaluated with respect to the price of the share associated with the company’s dividends and earnings. The best organizations can actually be bad investments if you tend to pay a lot for them. Remember, a reasonable cost does not mean a very low price.
Financial analysts use a discounted cash flow model to value shares. However, the ratio and the dividend yield of the share prices are good measures of determining its value as well. The earning price ratio of the share is calculated after dividing the share price of the company by the net profit for every share. Listed companies generally trade on profits that are 12 to 15 times higher than their peers. Some companies might trade on less if they have a subdued view, while high-quality organizations will trade on a higher price-earnings ratio.
Dividend yield
The dividend yield of a share refers to the returns from dividends. Companies that are riskier often have a good niche when it comes to investments in a shared portfolio. This adds value to a portfolio with shares from blue-chip companies.
Discipline is the key
When you are investing in shares, you must remember to be disciplined. Business experts recommend you write down some rules when it comes to how you are willing to buy shares. Some people take the time to make a list of the number of shares they wish to own and the companies in which they prefer to invest. They are wise investors, and they set their own limits when it comes to the type of risky companies that wish to invest in to gain a higher rate of return. These guidelines are extremely helpful and should be an integral part of every beginner investor’s strategy.
According to Kavan Choksi, you must ensure that you keep the above in mind when you are buying shares. Though the process does seem simple and easy, it is important for you to ensure that you are well aware of the risks and rewards entailed. If you are still unsure, bank on an experienced financial advisor to help you learn about the market before you invest!