How to evaluate equity
Apart from bonds, equities are also an important component of any investment portfolio. It is therefore important to understand the characteristics of equities.
Since World War II, with the industrialization of global economies, there are more and more companies, through the stock exchanges, raise capital to expand their business. Investors, both large pension funds and small investors can also participate in the economic growth of certain countries by investing through the equity market. Buying shares of a listed company generally means the ownership of a business. It also entitles you to vote in the shareholders meeting. For example, if you are a shareholder of HSBC shares, you actually own a percentage of the Bank. When a company makes profit during the year, they will declare dividend (usually quarterly or semi-annual) to shareholders. If you own the shares of a company, you will be entitled to receive dividend. The value of the share will also increase when the company grows. Equity prices are much more volatile than bonds as prices are affected by a lot of factors, such as economic environment, interest rate trend, corporate earning potential, etc. There are different ways in analysising the value of a company:¡@
We can evaluate the real value of a company by analysising the following information through annual reports, brokers' reports, trade journals, government publications, company management interviews:
Evaluating equity investment is time consuming and is a full time profession. It is advisable to seek assistance from professionals for advice.