According to us the principal areas of judgement to be considered while investing in any company are as follows:

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Balance sheet of the company: Whenever an investment has to be made in a company, the first and foremost area to go through is the balance-sheet of the company. The balance-sheet of the company gives the details about its assets and liabilities. The higher the asset side of the company as compared to the liability side, the stronger is the balance-sheet. The investors prefer a company that has a strong balance-sheet. Goodwill of the company: Financial statements: Risk Reward Ratio

For stock investors, the balance sheet is an important consideration for investing in a company's stock because it is a reflection of what the company owns and owes. The strength of a company's balance sheet can be evaluated by three broad categories of investment-quality measurements: working capital adequacy, asset performance and capitalization structure.

How to Evaluate Company

For any company, the ability to meet its short-term and long-term financial goals is an essential factor in maintaining its operations and ensuring future growth. A company evaluation at regular time intervals helps to check its financial health, its capital structure and its potential to attract investors. How to Evaluate Company : You can also evaluate company by assessing its capital structure and its potential to attract stock investors. A strong balance sheet is one of the most important things that stock investors consider before investing in the companys stock. A balance sheets strength can be measured in three categories: Working capital adequacy Capital structure Asset performance

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This article will show you how to evaluate company by evaluating its balance sheet based on its capital structure. A companys capitalization is composed of its long-term capital, which is a combination of equity and debt. A healthy proportion of equity capital, instead of debt capital, indicates good financial health. Debt-equity relationship The equity part of the debt-equity relationship consists of the companys stock and retained earnings. This long-term capital and debt supports the companys growth and its assets.

The debt part is often misunderstood by people as they take it that it means liabilities. However, investors should understand that operational and debt liabilities are two different things when they evaluate company.

They should understand that debt comprises short -term borrowings, long-term debt, twothirds of principal amounts of the operating lease, current portion of the long-term debt, and redeemable preferred stock.

There is no optimal debt-equity relationship. It varies depending on the companies line of business, the industry involved and the companys devel pment stage. o

However, it is generally seen that investors prefer companies having a lower percentage of debt than equity.

Capital ratios You can make use of three different ratios to evaluate company and measure its financial strength. Two of the ratios viz. debt and debt-equity ratios are very common measurements. The third one, capitalization ratio, gives a proper insight in evaluating the companys capital structure. Debt ratio helps in comparing total assets and total liabilities. If you have more liabilities it means you have lesser equity and therefore an increased leverage position.

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Debt-equity ratio compares total liabilities to the total equity of shareholders. The capitalization ratio compares the debt portion of the companys capital structure an the d equity part and is expressed in percentage terms. While evaluating company, keep in mind that a lower percentage means a healthy equity and is more desirable.

Testing the strength of the balance sheet The balance sheet of a company reflects exactly what a company owns and what it owes to others, making it a very important thing to be considered for stock investment.

It can be evaluated in three broad categories namely asset performance, working capital adequacy and the capitalization structure.