Finding solid companies offering real value isn’t easy. It takes hard work and a keen eye for numbers. A free stock screener like those at www.msn.com or www.reuters.com can help you separate the wheat from the chaff in short order.
Here are three tips for making use of this tool to identify safe companies with potentially high upsides:
1. Make sure you’re not falling for fairy tales. One commonsensical way to separate the hype from the reality is to check the company’s sales figures. Are they selling anything? Look for at least $50 to $100 million in sales during the past 12 months.
2. Stay away from debt-ridden companies. The less long-term debt a company has the better. Take a look at the company’s debt-to-equity ratio, which compares its debt to the amount shareholders have invested in the company (also known as shareholder equity). If it’s above 0.5, proceed with caution. The company may have trouble paying its bills or arranging additional financing in the future.
3. Insist on a positive cash flow. A positive cash flow tells you that money is pouring into the company’s coffers. A negative cash flow indicates that the company may be living beyond its means – nd why would you want to put your money into a company that’s just going to throw it down the drain?
(Ed. Note: Of course, there are many other factors you need to examine when making any investment. Andrew Gordon’s free weekly e-letter, goes far beyond the numbers to search out those that offer real value to investors. If you’re not already receiving it, subscribe today Money Insight.)