Company Fundamentals to Consider for Investment in Growth Stock

When you hear the word fundamentals in the world of stock investing, it refers to the company’s financial condition and related data. When investors (especially value investors) do fundamental analysis, they look at the company’s fundamentals — its balance sheet, income statement, cash flow, and other operational data, along with external factors such as the company’s market position, industry, and economic prospects. Essentially, the fundamentals indicate the company’s financial condition.

The main numbers you want to look at include the following:

  • Sales: Are the company’s sales this year surpassing last year’s? As a decent benchmark, you want to see sales at least 10 percent higher than last year. Although it may differ depending on the industry, 10 percent is a reasonable, general yardstick.

  • Earnings: Are earnings at least 10 percent higher than last year? Earnings should grow at the same rate as sales (or, hopefully, better).

  • Debt: Is the company’s total debt equal to or lower than the prior year? The death knell of many a company has been excessive debt.

A company’s financial condition has more factors than mentioned here, but these numbers are the most important. Using the 10-percent figure may seem like an oversimplification, but you don’t need to complicate matters unnecessarily.

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